Dollar Could Benefit on Signs That Global Growth Is Slowing Absent Stimulus

Dollar Could Benefit on Signs That Global Growth Is Slowing Absent Stimulus

Fears are growing that growth is stalling and a double dip recession is on the horizon. This week’s fundamental releases will provide key evidence to the fragility of the U.S. and Euro-zone economies. Euro-zone PMI, U.S. Durable Goods Orders and the second reading of U.S. GDP will highlight the week’s event risk. Signs that growth is faltering absent stimulus and ahead of austerity measures could lead to a continuation of the prevailing flight to safety.

• Euro-Zone PMI Composite (AUG A) – Aug 23– 08:00 GMT

The gauge for business conditions in the service and manufacturing sectors is always a key measurement of the economy and a potential market mover. Forecasts are for a slight slowdown in the pace of expansion to 56.4 from 56.7 with both sectors contributing. However, a reading above 50 would mark the 13th straight month of growth and will add to the case that the recovery is sustaining. Therefore, we could see interest rate expectations brighten following the recent uptick in inflation to 1.7% which could generate Euro support.

• RBNZ 2-year Inflation Forecast (3Q) – Aug 24 – 03:00 GMT

The upcoming RBNZ 2-year inflation forecast will present significant event risk for the New Zealand dollar as the pace of consumer prices will be the key determinant in deciding future monetary policy. Governor Bollard’s statements will put market participants on alert and the report should influence the outlook for interest rates. Signs that price growth is slower than expected could sink the high yielder with faster growth providing a boost.

• Canadian Retail Sales (JUN) – Aug 24– 12:30 GMT

Canadian domestic demand is forecasted to have grown by 0.3% in June as an improving labor market is bolstering consumer confidence. The lagging nature of the report lessens its impact especially following the recent slowdown in July core inflation to 1.6% from 1.7%. Therefore, the risk from the gauge could be to the downside if Canadians are starting to tighten their wallets in anticipation of a slowdown as the prospect for export demand dims. Therefore, we could see the “loonie” remain under pressure outside a re-emergence of broader risk appetite.

• U.S. Durable Goods Orders (JUL) – Aug 25 --12:30 GMT

The demand for long lasting goods is expected to have rebounded in July by 3.0% following consecutive monthly declines. However, markets will focus on the ex-transportation reading to gauge the underlining trend as non-defense aircraft sales are prone to large monthly swings. Capital goods could be the key component as it have slid three of the last four months, a continuation of the bearish trend could signal that growth in the world’s largest economy is on the verge of stalling. Companies reducing purchases of factories, machinery and tools doesn’t bode well for a labor market that is struggling to create jobs. Conversely, a positive reading could end the current flight to safety with disappointing results sparking fear and dollar strength.

• U.S. GDP (2Q S) – Aug 27 – 12:30 GMT

The second reading of 2Q U.S. GDP will end the week of event risk and typically isn’t a market moving event. However, forecasts are for a major revision from 2.4% to 1.4% which would put the economy on the cusp of a double dip recession. Domestic consumer spending and demand from abroad is expected to be weaker than initial estimates as the global economy is withering absent government stimulus and the onset of austerity measures. If this is the case then we could see a flight to safety favoring the dollar. The greenback could also benefit as the U.S. has been the most reluctant to end stimulus which could position its economy as the first to emerge from another contraction.

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

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