When bonds and stocks both rally along with commodities, markets have no fear. This was true for Eur...
Key Announcement Dates and Effects on FX This Week
03/11/2009 10:39 am EST
The US dollar ended last week mixed across the majors as the currency gained against the British pound, euro, Japanese yen, and Canadian dollar, but fell versus the Swiss franc, New Zealand dollar, and Australian dollar. However, when looking at the big picture—aka the DXY Index—the greenback remains in the uptrend that started in mid-December, which presents potential for further gains. This bias would be negated on a DXY index break below Friday’s lows near 88.00, and ultimately, the outlook may depend greatly upon risk trends and where equities go in coming weeks.
Fundamental Outlook for US Dollar: Bearish
Looking ahead to data releases this week, the big indicator to watch will hit the wires on Thursday at 08:30 ET. The Commerce Department is forecasted to report that US retail sales fell negative for the seventh time in the past eight months in February, as the surging unemployment rate, tight credit conditions, and a year-long recession weigh heavy on the minds of consumers. More specifically, advance retail sales are anticipated to have contracted 0.5% during the month, and excluding auto sales are expected to have slumped 0.2%, marking what may end up being a consistent trend through the first half of 2009. The impact of a disappointing result may be mixed for the US dollar, as the Federal Reserve has already cut the fed funds target to a record low range of 0.0% - 0.25% and has no room to cut further. As a result, it will be important to gauge the impact of the news on DJIA or S&P 500 futures, as a sharp shift could suggest either flight-to-quality or a pickup in risk appetite.
Other indicators to watch that may not be as market moving, but just as important as a gauge of economic health include: jobless claims, the trade balance, the import price index, and the University of Michigan (U of M) consumer confidence survey. On March 12 at 08:30 ET, both initial and continuing jobless claims are anticipated to rise further, with the latter forecasted to hit fresh record highs of 5,150,000. On March 13 at 08:30 ET, low oil prices could help lead the trade deficit to narrow slightly to $38 billion from $39.9 billion, while the annual rate of import price growth could plunge to a new record low of -13.6 percent. Finally, the U of M sentiment index is projected to fall to 55.0 from 56.3, which would mark the lowest level since May 1980.
The US dollar continues to trade near critical levels, and the markets are still waiting for a directional break, but commodity currencies like the New Zealand dollar and Canadian dollar have started to tumble below key support. With important rate decisions upcoming and major employment and consumption indicators due to be released, this week could be one in which we finally see meaningful breakouts.
- Reserve Bank of New Zealand Rate Decision - March 11
According to a Bloomberg News poll of economists, the Reserve Bank of New Zealand (RBNZ) is forecasted to cut rates by 50 basis points to 3.00%. Meanwhile, Credit Suisse overnight index swaps are pricing in at least a 50 basis point cut, but are also pricing in a 68% chance of a 75 basis point reduction. Based on the RBNZ’s policy statement from January, the central bank is still open to making monetary policy more accommodative, but they will not seek to implement the same aggressive cuts they’ve applied in the past as they said that they would “expect any further reductions to be smaller than those seen recently.” With growth still slowing, the financial markets not yet stable, and inflation pressures receding, the odds are in favor of a 50 or 75 basis point cut at 16:00 ET on Wednesday. That said, the outlook for the New Zealand dollar will hinge upon their policy statement, as indications that they are open to further cuts could weigh on the currency. However, if the RBNZ suggests in their policy statement that they will leave monetary policy unchanged going forward, the New Zealand dollar could actually rally.
- Australian Employment Change, Unemployment Rate (FEB) - March 11
The Australian labor markets started to deteriorate during the second half of 2008, and this is likely to continue through 2009. Indeed, the February unemployment rate is forecasted to rise to a nearly three-year high of 5.0% from 4.8%, while the net employment change is anticipated to fall by 20,000. The latter report tends to have a greater impact on the Aussie since the figure rarely meets expectations and can lead to volatile short-term price action for the Australian dollar immediately following the news at 20:30 EDT.
- Swiss National Bank Rate Decision - March 12
The Swiss National Bank is expected to cut their three-month Libor target rate down to a range of 0.0% - 0.50%, down from 0.0% - 1.00%, as Q4 GDP contracted for the second straight quarter at a rate of 0.3% while February’s CPI numbers show that inflation is barely holding positive at an annual rate of 0.2%. The Swiss economy has taken a severe hit from waning demand for Swiss goods by the country’s European neighbors, as exports fell 8.1% in Q4. With this scenario unlikely to change anytime soon, the odds remain in favor of another rate cut by the SNB, but ultimately the news may not have a large impact on the Swiss franc because the change is so minimal, and as interest rates fall lower, changes have less of an impact on the economy and financial markets. It is worth noting that the Swiss franc did tumble against most of its major counterparts when the SNB last cut rates in December, but gained against the greenback, so a repeat may not be out of the question.
- US Advance Retail Sales (FEB) - March 12
The Commerce Department is forecasted to report that US retail sales fell negative for the seventh time during the past eight months in February, as deteriorating labor markets, tight credit conditions, and a year-long recession weighs heavy on the minds of consumers. More specifically, advance retail sales are anticipated to have contracted 0.5% during the month, and excluding auto sales are expected to have slumped 0.2%, marking what may end up being a consistent trend through the first half of 2009. As we saw with US non-farm payrolls, the impact of a disappointing result may be mixed, as the Federal Reserve has already cut the fed funds target to a record low range of 0.0% - 0.25% and has no room to cut further.
- Canadian Employment Change (FEB) - March 13
At 7:00 ET, the Canadian net employment change is forecasted to have fallen by 50,000 during February after plunging a record 129,000 in January alone. Furthermore, the unemployment rate is anticipated to have risen to match the nearly five-year high of 7.4% from 7.2%. Since the employment change tends to be a very volatile release, this should have the greater impact on the Canadian dollar, with a sharper than expected drop likely to weigh on the currency and an unexpected positive result likely to push it higher.
By Terri Belkas, Currency Strategist, DailyFX.com
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