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Watch The 2023 Dots

Published 06/17/2021, 02:05 AM
Updated 07/09/2023, 06:31 AM

All eyes were on yesterday's FOMC decision/forecasts/press conference. Tuesday's soft US retail sales report was one more reason for the Fed to stress patience at Wednesday's FOMC.

NZD and AUD were the top performers, while CHF and EUR were the weakest of the day.

Canadian CPI y/y edged up over expectations, but CAD remained unchanged.

Comments from BoC's Macklem were also in focus on Fed day.

Gold Bugs Ratio Daily Chart

US retail sales fell 1.3% in May, well shy of the -0.8% expected but the headline didn't tell the whole story. The prior was revised to +0.9% from 0.0% and that left the overall sales numbers close to expectations. It was a similar story in the control group, where a big revision higher outweighed a small miss on the headline.

Fed will note the slowing trajectory and consumers' mixed signals

Spending is shifting towards restaurants and travel from durables and home improvement. The overall pace of spending is still high but that's just after some large stimulus payments.

The main factor for the Fed is jobs. Disappointing readings on the past two jobs reports weigh heavily on yields and that's the top metric Fed Chair Jerome Powell is focused on. Expectations for a direct hint to tapering were low.

Powell was also likely to push back the timeline for taper discussions to August as he highlighted uncertainty and a lack of urgency to shift policy.

One market mover is likely to be the dot plot. The current median forecast is for no hikes in 2023, but we could see a shift to a slim majority calling for at least one 2023 hike. The prior dots showed 11 forecasting no 2023 move and 7 forecasting a hike.

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If there's a shift it would boost the US dollar but risks are two way: some of the recent dollar appreciation could unwind based on dots signals and Powell staying dovish.

Part of the reaction depends on how Powell navigated questions about inflation. He was sure to point to transitory factors and bottlenecks, while also adding a nod to say that if high prices are persistent, they have the tools to deal with it. Lately, that message has resonated with markets and bond yields have fallen but, there are many minefields that Powell needed to navigate.

Lately the loonie hasn't responded to higher oil prices, but if the climb continues, it surely will.

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