- Poland reported June CPI on Monday and was well below expectations.
- South Africa Reserve Bank meets Thursday and is widely expected to keep rates steady at 5.0%.
- Brazil releases the minutes from the July COPOM meeting on Thursday.
- China reported a slew of data earlier today.To recap, Q2 GDP was at the expected 7.5% y/y vs. 7.7% y/y in Q1,though sequentially, Q2 GDP increased 1.7% from 1.6% in Q1. June IP and retails were also reported. IP was softer than expected at 8.9 % y/y while retail sales were firmer than expected at 13.3% y/y. With officials saying that China can cope with growth near 6.5% in the future, we think the signals are clear that growth is likely to slow further from 7.5% y/y. USD/CNY has traded largely sideways since early May, and we see that continuing in Q3 and into Q4.
It was flat while the consensus on the month and a mild 0.2% year-over-year, down from 0.,5% ini May. Some at central bank are hinting that the easing cycle is over now, but with disinflation moving closer to deflation, we think that there is still scope to ease in Poland. The next policy meeting is September 4, and though consensus is now for no move, we think it will depend on how the data come in during July and August and we would not rule out another cut. For EUR/PLN, support near 4.30 is being tested and a clean break points to 4.25. Resistance near 4.35 has held despite repeated attempts to break above it. Break would target the 4.43 high from June 2012.
Ahead of that, South Africa reports May retail sales on Wednesday, expected at 2.4% y/y vs. 1.9% y/y in April. Inflation remains too high to cut rates now, but if the economy remains sluggish and inflation continues to fall, we think a rate cut is possible at either the September 19 or November 12 meetings. For USD/ZAR, support seen near 8.85, 9.75, and then 9.50. Resistance seen near 10.15, 10.30, and then 10.37.
At that meeting, COPOM hiked rates 50 bp and the language signaled that this pace would continue for now. Next COPOM meeting is August 27/28, and so we expect another 50 bp hike then. Brazil reports mid-July IPCA inflation on Friday, and price pressures are expected to remain high. For USD/BRL, support seen near 2.25 and then 2.20, resistance seen near 2.28 and then 2.30. The 2.45 high from March 2009 is the next big target after that.