On Wednesday, Japan will release the monetary policy meeting minutes, after which attention will shift to inflation data from Australia. Later in the day, in Canada the spotlight will be on the BoC monetary policy announcement, while the FOMC meeting will be the focus in the U.S.
On Friday, Japan will report the Tokyo core CPI y/y. In the U.S., key releases will include the core PCE price index m/m, the employment cost index q/q, personal spending m/m, and personal income m/m.
The consensus for Australian CPI q/q is 0.3%, compared to 0.2% previously; CPI y/y is expected at 2.5%, compared to the prior 2.3%. For the trimmed mean CPI, a key measure of core inflation, expectations are for 0.6% quarterly growth, down from the previous 0.8%.
However, these estimates carry downside risks, with both headline CPI and core inflation potentially coming in lower than expected. Regarding monetary policy, the RBA will closely monitor this week’s data to guide its next steps, as the market anticipates a possible 25 bps rate cut in February.
Given the latest economic data, including mixed GDP growth and inflation trends, the Bank is not yet finished with rate cuts. Q4 GDP is tracking close to the BoC's forecast of 2% growth, while inflation, excluding indirect taxes, showed a slight increase in December, analysts from RBC said.
Additionally, concerns about potential U.S. protectionist trade policies and aggressive tariffs on Canadian imports have increased downside risks to the BoC’s growth outlook. If these risks escalate, they could further influence the Bank's decision to continue cutting rates.
Labor market data has shown improvement, with the unemployment rate dropping to 4.1% and non-farm payrolls surprising to the upside. For now, the market anticipates that the Fed will pause, with analysts from Wells Fargo forecasting rate cuts of 25 bps each in September and December. However, those decisions are still far off.
At this week's meeting, the ECB is expected to deliver a 25 bps rate cut, lowering the policy rate to 2.75%.
Analysts from Wells Fargo also expect 25 bps rate reductions in March, April, June and September, bringing the rate to 1.75% at the end of 2025.
Many analysts argue that inflation will remain elevated in the near future causing the BoJ to adopt a data-dependent approach. As a reminder, at last week's meeting, the BoJ delivered a 25 bps rate hike, raising the policy rate to 0.50%. Inflation, driven by higher wages, has been on the rise, with the latest CPI excluding fresh food showing a 3.0% year-over-year increase.
In the U.S., the consensus for the core PCE price index m/m is 0.2%, compared to the prior 0.1%; for personal income m/m, the consensus is 0.4% vs 0.3% previously; and for personal spending m/m, the consensus is 0.5%, compared to the prior 0.4%.
According to analysts from Wells Fargo, the rise in goods spending is a concern for policymakers as it reduces deflationary pressures making the sector more vulnerable to potential price increases such as those resulting from President Trump's planned tariffs. However, slower services growth could help ease core inflation.
This article was written by Gina Constantin at www.forexlive.com. Read More Details
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