The week of September 22-26 will feature important economic data from around the world. Investors will keep a close eye on inflation reports from Australia and Japan, along with the U.S. Personal Consumption Expenditures (PCE). Monday starts off quietly with comments from FOMC members, followed by the release of manufacturing and services PMIs from various regions, including Australia and the eurozone on Tuesday.

Midweek Focus

On Wednesday, the spotlight will be on Australia’s inflation data and Japan’s core CPI. Thursday will bring the Swiss National Bank’s monetary policy announcement and a packed schedule for the U.S. On Friday, we will see Japan’s Tokyo core CPI, Canada’s GDP figures, and several U.S. economic indicators like the core PCE price index and consumer sentiment surveys from the University of Michigan. Throughout the week, FOMC members will discuss economic risks and possible rate cuts. Australia’s CPI is expected to rise to 2.9% year-over-year from 2.8%. This increase is largely due to higher electricity and housing costs. Swiss inflation data aligns closely with expectations, maintaining stable monetary policy. The U.S. housing market remains weak, with home sales predicted to decline. Durable goods orders show strength in specific sectors, particularly in transportation and technology, while Japan keeps an eye on inflation and the impact of U.S. tariffs. The core PCE deflator is expected to be 0.2% month-over-month, which is critical for the Fed’s inflation outlook and future rate cuts. With the Federal Reserve hinting at two more rate cuts this year, the U.S. Core PCE inflation data on Friday is crucial. A reading of 0.2% or lower would support the Fed’s cautious stance, potentially boosting stock markets and weakening the dollar. Derivative markets are pricing in an 85% chance of a rate cut at the October meeting, so any unexpected inflation could lead to significant market fluctuations. Traders should pay attention to the eurozone’s flash PMI data on Tuesday for signs of economic weakness. The strong August reading of 50.8 was encouraging, but the index dipped below the 50-point mark for much of 2024. If this week’s data shows a return to sluggishness, there could be renewed speculation about the European Central Bank easing, leading to opportunities in EUR/USD put options.

Key Event for Australian Dollar

In Australia, the expected rise in annual inflation to 2.9% is significant for the Australian dollar. The Reserve Bank of Australia has kept its cash rate steady for over a year, making it sensitive to surprises in inflation. A higher-than-expected result on Wednesday might push the AUD higher, making call options appealing for those betting on rising housing and energy costs. The U.S. housing and durable goods data will add context to the economy’s health. Current expectations lean toward weakness in these reports, supporting the view of a cooling economy that justifies Fed rate cuts. However, any unexpected strength, especially in durable goods orders, could challenge this view and cause short-term volatility. In Japan, the Tokyo core CPI will be watched, but we anticipate a muted market reaction. Governor Ueda has taken a cautious stance, and since core inflation is still below the 2% target annually, a single data point is unlikely to trigger a policy shift. We see this as a longer-term trend to monitor rather than a trigger for immediate trading. Overall, the week may see a drop in market volatility if inflation data confirms a disinflationary trend. However, each data release could act as a turning point, where surprises might disrupt current expectations. This makes options strategies that benefit from a significant price movement, rather than merely a rise in volatility, especially valuable around the U.S. PCE release on Friday. Create your live VT Markets account and start trading now.

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