Upcoming Week: Focus on Services PMIs, RBA, Fed Speakers, and China

Following recent monetary policy choices and economic signs, remarks from central banks could lead investors to readjust their interest rate forecasts.  

Highlights

• Service industry PMI data will establish the week's outlook, particularly as some economies confront the growing possibility of a Q1 economic downturn.
• On Tuesday, the Reserve Bank of Australia (RBA) will announce its initial interest rate determination for 2024 and may address the potential for rate reductions.
• Furthermore, investors should factor in inflation figures from China and central bank statements over the course of the week.  

The US Dollar

On Monday, the focus will be on the ISM Non-Manufacturing PMI, with increased service sector activity potentially impacting expectations for a March Fed rate cut. Consideration of PMI sub-components like prices and employment is essential.
On Tuesday, attention shifts to the RCM/TIPP Economic Optimism Index, which could drive demand for the US dollar if sentiment toward the economy strengthens. 
Thursday will feature scrutiny of the US labor market, with elevated jobless claims potentially influencing expectations of a March Fed rate cut. Additionally, FOMC member speeches will be closely monitored for insights into the economic outlook, inflation, and the Fed rate path. 

The EUR

Monday will see the release of trade data from Germany and service sector PMIs, with a potential impact on expectations of a Q1 economic recession. The contribution of the services sector to inflation, along with consideration of sub-components like prices and employment, is crucial. 
Tuesday will put the spotlight on German factory orders, with further declines potentially signaling Q1 recessionary trends.
The week's end will feature finalized German inflation numbers, which could affect expectations of an April ECB rate cut. Additionally, ECB commentary from key figures will be monitored for insights.

The Pound

Monday brings the finalized UK Services PMI numbers, influencing considerations around a Bank of England rate cut. Sub-components like input price inflation and employment will be important.
Tuesday features the BRC Retail Sales Monitor, potentially prompting Bank of England discussions about interest rate cuts.
Wednesday will focus on the UK housing sector, with conditions potentially impacting consumer confidence and spending. The RICS House Price Balance report on Thursday also requires attention. Bank of England commentary from prominent figures will be closely tracked throughout the week.

The Loonie

Wednesday presents Bank of Canada Governor Macklem's influence on buyer demand for the Loonie, with forward guidance on inflation and monetary policy intentions being key.
Additionally, trade data on Wednesday and employment numbers from January on Friday will be instrumental in shaping perceptions about the USD/CAD.

The Australian Dollar

Monday's trade data release will draw investor interest, potentially impacting RBA discussions about an interest rate cut.
Tuesday's retail sales data will also be crucial, as softer inflation outlooks could influence the RBA's rate cut timing. 
The main event of the week will be the RBA interest rate decision, with forward guidance on various economic factors playing a pivotal role. Economic indicators from China will also be of significance.

The Kiwi Dollar

Thursday's inflation expectation numbers for Q1 will affect buyer demand for the Kiwi dollar. Other economic indicators from China will also need to be considered.

The Japanese Yen

Finalized services PMI numbers on Monday and household spending figures for December will influence buyer appetite for the Japanese Yen. BoJ chatter throughout the week will be closely monitored for any potential pivot from negative rates.

Out of China

The Caixin Services PMI for January on Monday will draw investor interest, potentially impacting demand for riskier assets and trade-sensitive currencies like the Aussie and Kiwi dollars.
Inflation numbers on Thursday will also be significant, with considerations of producer and consumer prices and potential implications for riskier assets. Stimulus chatter from Beijing will also warrant attention.