US Inflation Data in Focus

Daily Analysis - 14/07/2017

Dollar Bulls Await Signs of Pick-Up in Prices

US consumer price inflation figures are due later Friday and expected to set the tone for the greenback's short-term direction. Signs of a pickup in inflation could reinforce views that the Federal Reserve would hike interest rates sooner than expected and reveal its plans to pare back the balance sheet, reviving the stalled dollar rally.

Financial Markets Expected to be Volatile

The US dollar's recent advance, most notably against the Japanese Yen, has been arrested after Federal Reserve Chair Janet Yellen dampened some of the expectations surrounding monetary policy tightening.

The consensus estimate of economists is calling for the core consumer price index (CPI) to have risen only 1.70% percent year-over-year through the end of June. On a monthly basis, the core CPI figure is projected to climb 0.20% after a 0.10% gain in May.

Following the June rate increase, the Fed has been keenly watching inflationary trends to determine the course for policy. Given that the stakes are high, today’s session is likely to be volatile, especially for the dollar basket of currencies.

USDCHF is trading within a very tight range early Friday, with the pair hovering around the 0.9670-mark

German Inflation Accelerates as French Price Growth Ebbs

Officials at the European Central Bank, who were hoping for a sustained increase in inflation to support their recent hawkish stance, received mixed signals from the Euro Area’s two biggest economies.

Final June consumer price inflation readings confirmed price growth accelerated in Germany but slowed in France. On a European Union-harmonised basis, year over year inflation in Germany edged to 1.50% from the 1.40% reported back in May.

Economists were initially expecting the figure to drop, but a second release on Thursday confirmed the stronger than projected flash figure. However, the annualized pace of inflation in France slipped to a mere 0.80% from 0.90% in May, with price growth stagnating on a monthly basis.

CAC 40 futures ended higher on Thursday, with the equity benchmark trending just below key resistance sitting at 5250.

Corn Futures Plunge as Crop Yield Forecast Climbs

US corn futures tumbled on Thursday after the US Department of Agriculture raised its stocks forecast, based on increased corn plantation and the number of areas under harvesting.

In its monthly supply and demand report, the USDA lifted its forecasts for end 2017-18 corn stocks to reach 2.325 billion bushels from the 2.110 billion bushels in inventories recorded during June. Analysts polled by Reuters were anticipating a figure of around 2.181 billion bushels, with the latest estimates blowing them away.

Most of the US corn crops pass through their yield-determining pollination phase in July.

Furthermore, the recent shift in weather and the outlook for marginally less heat next week were seen as benefitting the development of the crop.

Corn futures for September delivery ended Thursday at $368.50 with prices mounting a pullback in Friday morning trade.

New Zealand Manufacturing Activity Declines

After touching a 16-month high just a month prior, a leading survey released early on Friday showed that manufacturing activity in New Zealand dropped in June. The Bank of New Zealand's seasonally adjusted Performance of Manufacturing Index fell to 56.2 from a May reading of 58.2.

The slump in activity was largely attributed to firms reining in employment amid a growing labour shortage. The employment sub-index of the PMI tumbled an enormous 5.5 points to 49.5 in June - the first time the sector reported contraction since November of last year.

Federal government data had revealed earlier that manufacturing accounted for roughly 9.90% of the total employed workforce during the March quarter, down from 10.70% in the three months to December.

NZDUSD is largely unchanged in Friday morning trade, with the pair edging modestly above 0.7320.