Busy week of central bank decisions and inflation data ahead

The FX market faces a quiet start on Monday before a packed schedule of economic releases and central bank meetings takes over for the remainder of the week.

Tuesday's calendar features Japan's BoJ Core CPI figure, while the U.S. releases data on durable goods orders, consumer confidence, and new home sales.

Wednesday is a heavy day. Australian inflation figures are due, followed by the Reserve Bank of New Zealand's policy decision. The UK annual Budget is released, and Canada will also announce its own monetary policy. The US Federal Reserve's highly anticipated FOMC meeting takes place simultaneously.

Thursday sees the US publish its advance GDP reading, core PCE price index, and jobless claims, while the European Central Bank unveils its monetary policy decision.

Japan rounds out the week on Friday by releasing its Tokyo Core CPI data and the Bank of Japan's policy announcement.

Traders should note the shift back to standard time in Europe, which took effect on Sunday, alongside the potential for month-end portfolio rebalancing to amplify volatility.

The consensus forecast for Australian CPI stands at 0.7% month-on-month, up from 0.4% previously, with an annual rate of 4.2%, compared to 4.0%. The trimmed mean CPI is expected at 0.3% m/m, above the previous 0.2%.

Westpac forecasts a slightly lower monthly figure, with September CPI rising by 0.6% m/m, bringing the annual pace to 4.1%. Recreation and culture are tipped to post the largest gains, followed by transport.

On a quarterly basis, Westpac expects Q3 CPI to come in at 1.3% q/q, keeping the annual rate steady at 3.9%. The trimmed mean is seen rising 0.9% q/q, while the monthly trimmed mean for September is put at 0.3%, holding the annual rate at 3.6% for the fourth straight month.

The RBNZ is widely expected to hike rates by 25 basis points this week, taking the Official Cash Rate to 3.00%. Further tightening is being priced in by markets despite inflation coming in below forecasts.

Higher oil prices, a weaker New Zealand dollar, and robust growth have increased the risk of inflation topping 4% in Q4. Hawkish recent comments from RBNZ officials have cemented expectations for the October move.

ING analysts argue the tightening cycle could be prolonged, flagging a potential further hike in December or February. Their terminal rate projection stands at 3.25% to 3.50%.

The Bank of Canada is widely projected to deliver a 25 basis point hike to 2.50%. The probability of a move sits above 80% following Governor Tiff Macklem's recent warnings on inflation risks from rising oil prices.

Wells Fargo analysts, however, see softer September inflation, easing price pressures, and a cooling labour market as arguments for holding rates steady.

Scotiabank believes the move is largely priced into swaps, meaning the Canadian dollar's reaction will hinge more on the Bank's forward guidance. Hints of consecutive tightening would likely provide further support to the loonie.

Markets are pricing in roughly 100 basis points of total tightening by end-2027, even without strong evidence from inflation data to justify it. This leaves the Canadian dollar exposed to setbacks if data or policy decisions fall short of these hawkish expectations.

The US Federal Reserve is expected to hold the federal funds rate steady. Data has surprised on the upside since the last meeting, but policymakers have signalled a preference for a wait-and-see approach.

No major surprises are anticipated, and with no updated dot plot or economic projections due, the policy statement is also likely to remain largely unchanged.

Fed Chair Warsh is not expected to offer clear forward guidance but may take a hawkish stance given elevated inflation. The central bank's internal task forces, due to report around year-end, could also help shape expectations.

The ECB is likewise expected to leave its policy rate unchanged at 2.50%. Political and fiscal strains in France are putting further policy tweaks under pressure by pushing borrowing costs up.

Eurozone inflation remains above the 2% target, with headline inflation at 3.8% in September and core inflation at 2.5%. With growth projected as resilient in Q3, the case for further tightening is supported.

Wells Fargo forecasts a December hike, contingent on bond market conditions. A resolution in France would provide room for manoeuvre, while a disorderly sell-off spreading to other indebted members would make a move less probable.

For US data, the consensus is for core PCE to print 0.3% m/m, personal income at 0.3% m/m, and personal spending at 0.6% m/m.

Consumer spending is expected to stay resilient on the back of growth in goods and services and higher income. Wells Fargo notes firmer income revisions and wealth growth are bolstering spending against high rates and inflation.

The release coming after the FOMC meeting should limit its market impact, as focus remains squarely on inflation data.

US advance GDP is seen printing at 3.2% q/q, up from 2.2%, buoyed by consumer spending and business investment, notably in high tech.

Wells Fargo acknowledges that consumer spending may ease somewhat, but argues firmer income fundamentals should allow household spending to continue underpinning growth.

The BoJ is widely expected to hold its policy rate at 1.25% this week to gauge the effects of its previous 25 bps hike.

Inflation sits above the BoJ's 2% target, and accommodative financial conditions leave room for action. Traders will watch the Bank's updated forecasts and Friday's Tokyo CPI data. Tokyo core CPI is seen printing 2.6% y/y, versus 2.7% previously.

Further hikes are expected. Wells Fargo sees the next one in December, followed by another in 2027. ING's timeline puts the next hikes in January and April. Both project the rate will reach 1.75% next year.