The British pound and New Zealand dollar have both gained versus the US dollar and Japanese yen in recent days amidst a pickup in risk appetite, but with CPI and GDP reports due out from both regions, there is potential for fundamentally-led pullbacks in these currencies this week.
- UK Consumer Price Index (CPI) (FEB) – March 24
The UK’s consumer price index (CPI) reading for the month of February is expected to rise 0.3 percent, the first increase in six months. However, the annual rate of growth, which is more closely watched by the Bank of England, is forecasted to fall back into the central bank’s inflation target range of 1 percent - 3 percent for the first time since March 2008 to 2.6 percent. If CPI falls more than forecasted, the British pound could pull back sharply as the markets will anticipate that the BOE will leave rates unchanged at an ultra-low 0.50 percent through the entire year. - US Durable Goods Orders (FEB) – March 25
Signs that domestic demand is showing no sign of recovery should continue to emerge as US Durable Goods Orders are forecasted to have dropped 2.5 percent and even excluding transportation is anticipated to fall 2.0 percent. All told, this would mark the seventh straight month in which the headline reading failed to rise, and while this 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 3-month annualized figure has fallen sharply over the past few months, and combined with the weak outlook for the headline reading, the news could weigh on the US dollar, especially versus higher-yielding currencies. - US Gross Domestic Product (GDP) (4Q F) – March 26
The 08:30 ET final reading of Q4 GDP for the US is forecasted to be revised even lower after the second round of estimates showed the index down 6.2 percent. The latest results may show a sharp 6.6 percent contraction, which would be the worst since Q2 1980. The National Bureau of Economic Research (NBER) has already declared that the US has been in recession since December 2007, but a plunge in GDP in line with expectations will only suggest that the contraction in growth will continue to be worse than previously expected. The Federal Reserve really has no room to make monetary policy more accommodative, so traders should watch for the impact of this report on equities, as a surge in risk aversion may only lead the US dollar higher if flight-to-quality ensues. However, if the data is in line with expectations, the markets may brush off the news as much of this weakness has already been priced in. - New Zealand Gross Domestic Product (GDP) (4Q) – March 26
Upcoming GDP reports are anticipated to show that the New Zealand economy contracted for the fourth straight quarter during Q4, at a rate of -1.1 percent. This is anticipated to be the sharpest decline since Q1 1991, as demand for exports declines, unemployment climbs, and consumer spending falters. As it stand, Credit Suisse overnight index swaps are pricing in a 25bp cut by the Reserve Bank of New Zealand (RBNZ) on April 29, but if New Zealand GDP falls more than expected, speculation of more aggressive rate cuts could rise and weigh on the New Zealand dollar. - US Personal Income, Personal Spending (FEB) – March 27
On Friday at 8:30 ET, data is expected to show that personal income fell by 0.1 percent in February, while personal spending grew for the second straight month by 0.2 percent. The results of the income component should prove to be interesting, especially since last month’s 0.4 percent gain was due primarily to increased social security and unemployment benefit payments. Without those factors, though, wage growth has stagnated as unemployment climbs, suggesting that personal consumption should continue to be lackluster in coming months. That said, there is potential for personal spending to actually contract, and such a result may hurt risk appetite.
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
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