Forex traders will find significant event risk this week, as Canadian retail sales and CPI will be released, along with US durable goods orders and New Zealand GDP.
Nevertheless, with US Treasury Secretary Paulson and Fed Chairman Bernanke scheduled to speak various times during the week regarding the latest market turmoil and potential solutions, shifts in risk sentiment will likely remain the primary driver in the markets.
• Testimony by Treasury Secretary Paulson and Federal Reserve Chairman Bernanke – September 21 - 25
First and foremost, traders need to watch for an announcement on Sunday from US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke since they are expected to release details for a plan to take mortgage-related debts from financial institutions that will cost “hundreds of billions” of dollars. This sort of news could be beneficial for carry trades and negative for low-yielding currencies like the US dollar and Japanese yen, and with Mr. Paulson and Mr. Bernanke both scheduled to speak multiple times during the week, volatility should remain high.
• Canadian Retail Sales – September 22
Consumer spending in Canada is expected to have risen 0.2 percent in July, and excluding autos, retail sales are forecasted to have jumped 0.6 percent. However, there is potential for a surprisingly strong reading given the surge in Canadian wholesales sales for the same period, which tends to be a decent leading indicator. Indeed, the Canadian economy has proven to be rather resilient in the face of the US economic slowdown, as domestic demand has yet to truly falter and as a result, the data could be bullish for the Canadian dollar.
• Canadian Consumer Price Index – September 23
Canadian CPI for the month of August is anticipated to rise to an annualized pace of 3.5 percent – a more than 5 year high – while the Bank of Canada’s core CPI may hold steady at 1.5 percent. However, there is potential for the headline reading to reflect softer inflation pressures given the broad decline in commodity prices during the survey period, and this surprise factor could weigh on the Canadian dollar. On the other hand, a weakening in the currency over the past few months could boost import price inflation, providing potential for a hot number. Overall, this will be an important release because it may help to shape the bias of the Bank of Canada at their next policy meeting on October 21, as well as their outlook for growth and inflation in the next Monetary Policy Report on October 23.
• US Durable Goods Orders – September 25
Can Boeing help the US durable goods orders figure to rebound? Not a chance, as airline orders slumped in August to 38, down from 70 in July. While the headline will have the most impact on forex trading, the markets should keep an eye on non-defense capital goods orders excluding aircraft, as this number serves as a leading indicator for business investment. The reading has improved over the past two months, but with durable goods forecasted to plunge 1.8 percent, the headline reading could ultimately lead the US dollar lower.
• New Zealand Gross Domestic Product (GDP) – September 25
The New Zealand is anticipated to contract for the second consecutive quarter in Q2, as GDP is expected to fall 0.4 percent and drag the annualized figure down to a nearly 10-year low of 0.6 percent from 1.9 percent. The culprit? Record high interest rates. The Reserve Bank of New Zealand has left rates at a restrictive 8.25 percent until July 2008 in an attempt to fight rocketing inflation pressures in the economy. Indeed, a decline in GDP is essentially the intended result of these monetary policy actions, as weaker expansion will weigh on inflation pressures, and the news will likely lead the markets to continue speculating that the RBNZ will cut rates aggressively through the end of the year. As a result, there is massive downside risk for the New Zealand dollar this week.
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
Questions? Comments? E-mail: tbelkas@dailyfx.com
