Weekly Market Outlook: RBA, BOC and CPI date take centre stage

December 04, 2021 14:09

Commodity currencies have been hit the most in recent weeks as investors sought safety in the US dollar on rising interest rate expectations. The Australian dollar has been one of the worst-hit currencies.  

This week’s Reserve Bank of Australia (RBA) statement on Tuesday will be widely watched. While no changes are expected in the interest rate, traders will be looking for clues on the timing of future changes.  

The Bank of Canada (BOC) rate statement and press conference on Wednesday could also be a market mover as the market is currently pricing five interest rate hikes next year. The economy is performing well with a strong jobs market but traders will want to hear what effect the fall in oil prices is likely to have.  

Friday’s US Consumer Price Inflation (CPI) report is also likely to be a market mover. The US dollar has been surging higher recently amid the bombshell from Fed Chairman Jerome Powell that they could accelerate the withdrawal of its stimulus measures much faster than expected.  

You can learn more about some of the global themes affecting the markets in this selection of new education articles.  

Weekly Forex Calendar 

Source: Forex Calendar from the MetaTrader 5 trading platform provided by Admirals.  

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Trader’s Radar – US CPI Figures

On Friday 10 December at 1.30 pm GMT, the Bureau of Labor Statistics will release the latest Consumer Price Inflation (CPI) figure. This shows the change in the price of goods and services purchased by consumers which accounts for overall inflation.  

Inflation figures are important because the central bank will adjust interest rates to contain inflation at a level mandated by the government. As inflation has been rising in the US at a very fast pace, expectations for a rise in interest rates have increased – even Fed Chair Jerome Powell suggested this could be the case. 

With US inflation set to reach nearly 7% by the end of the year, the market is pricing in interest rates increasing sooner rather than later to bring inflation down to the 2% target. This has caused huge inflows in the US dollar.  

Source: Admirals MetaTrader 5USDX, Monthly - Data range: from 1 Aug 2013 to 4 Dec 2021, performed on 4 Dec 2021 at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.  

The long-term price chart of the US dollar index shows a trading range that has developed since 2014. As the price has recently bounced off the lower support level of the trading range the US dollar has rallied.  

There is potential for further upside yet to come and eventually the price could make its way back to the top of the trading range. However, momentum has been strong so be mindful of a pullback happening first.  

While the euro and British pound have weakened against the US dollar, the commodity currencies have been hit the most which is why this is a big week for AUDUSD and USDCAD. 

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Corporate Trading Updates and Stock Indices 

Global stock markets have had a stellar year so far. However, the reaction of the stock market to the threat of the Omicron variant has shown many investors may have banked some profits.  

Tesla CEO Elon Musk sold another $1 billion worth of stock last week while Microsoft CEO Satya Nadella sold half of his entire holdings of Microsoft stock recently. Some investments banks, such as Bank of America, believe the correction is just getting started. 

Source: Admirals MetaTrader 5, SP500, Daily - Data range: from 2 Mar 2021 to 4 Dec 2021, performed on 4 Dec 2021 at 6:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. Past five-year performance of the S&P 500: 2020 = +16.17%, 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%, 2016 = +8.80 

Last week highlighted the potential drop in the S&P 500 stock market index to the 100-day exponential moving average. We are now at this level. The price action which develops here will be interesting.  

Will investors buy the dip here or will they be more cautious and will we see the price move towards the 200-day exponential moving average? While traders may look for the momentum to follow, long-term investors may use this to look for undervalued stocks.  

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Jitanchandra Solanki
Jitanchandra Solanki Financial Markets Author, Admirals London

Jitanchandra is a financial markets author with more than 15 years experience trading currencies, indices and US equities. He is an accredited Market Technician with a BA Hons degree.