Markets closed out yet another volatile week of trading, dominated by inflation and speculation about Central Bank action, to quell it. The ‘good economic data’ triggers risk off sentiment, as markets take this as a green light for further tightening in monetary policy, while weak economic data has the opposite impact. ‘Up is down’ and ‘black is white’. The Federal Reserve has been unflinching in their approach, raising rates and assuring markets it will continue, until the war is won. This does not stop hopeful speculation of ‘peak inflation’ and ‘peak interest rates’, leading to the market volatility. Bond Yields are on the march, once again, as this is the bond market finally accepting that the Fed is serious. The coming week will be dominated by inflation and growth data, in the US and Europe, while US Retail Sales will tell the tale of the consumer. US Bond yields are pushing the US Dollar higher, forcing the EUR below 1.0700, while the GBP has attempts to hold 1.2000.
The RBA minutes revealed a growing resolve to fight inflation, cemented by the last shocking inflation reading of 7.8%, confirming more rate rises are coming. This was initially a positive for the currency, as rising returns may appear more attractive, but the economic pain of higher rates finally took it’s toll on the AUD. The AUD closed the week struggling to hold 0.6900, while the NZD is testing 0.6300, to the downside. Inflation, growth and Central bank speculation are set to dominate the coming week.