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FOREX: US Dollar May Find Lifeline, NZ Dollar Sold on Soft CPI Data

By , Currency Strategist
25 October 2011 05:53 GMT

Talking Points

  • New Zealand Dollar Sold as Q3 CPI Reading Falls Short of Expectations
  • S&P 500 Futures Point to Pullback in Risky Assets, US Data Key Ahead
  • BOE’s King, Bean Testimony on QE May Offer Policy Outlook Insights
  • Traders to Look Past Spain Bond Sale, Focus on Wednesday’s EU Summit

The New Zealand Dollar underperformed in otherwise quiet overnight trade, sliding as much as 0.5 percent on average against its leading counterparts, after third-quarter Consumer Price Index figures printed below economists’ expectations to show the annual inflation rate slowed to 4.6 percent. The decline from the three months through June marked the largest quarterly drop in over a year and weighed on rate hike expectations ahead of Wednesday’s RBNZ monetary policy announcement.

Looking ahead, a lackluster European economic calendar shifts the focus to the US data docket, with October’s Consumer Confidence reading as well as the Richmond Fed Manufacturing gauge set to cross the wires. Both reports are expected to yield the second consecutive month of improvement, reinforcing the cautiously optimistic trend in US economic data in place since early June. It is unclear however whether such outcomes will prove supportive for risk appetite in terms of improving the outlook for global growth or detrimental in that stronger US performance undermines the case for additional quantitative easing (so-called “QE3”).

Dovish overtures from the Fed’s Daniel Tarullo and Janet Yellen were cheered by the markets late last week. However, Monday’s hawkish remarks by Dallas Fed Governor Richard Fisher and an even-handed speech from New York Governor Bill Dudley reminded investors that the rate-setting FOMC is divided, with no signs of consensus in favor of more accommodation to speak of as yet. As it stands, S&P 500 stock index futures are pointing lower ahead of the opening bell in Europe, pointing to a corrective tone favoring a pullback in risk-linked assets after Monday’s surge in global share prices and promising a lifeline to the safe-haven US Dollar.

Elsewhere, Spain will sell a tranche of 84- and 175-day bills, but the short tenor of the securities on auction means traders are unlikely to pay too much attention to the outcome, particularly with Wednesday’s second round of EU debt crisis talks still pending. Bank of England policymakers Mervyn King and Charles Bean are scheduled to testify before the UK Parliament's Treasury Committee on the subject of quantitative easing, which may offer some insights on where monetary policy is headed after the latest round of asset purchases is complete. Earnings reports from global business cycle-sensitive companies including UPS Inc, EI du Pont, and 3M Co are also on tap.

Related: S&P 500 at Trend-Defining Resistance, US Dollar Chart Hints at Upswing

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Consumer Prices Index (QoQ) (3Q)

0.4%

0.7%

1.0%

21:45

NZD

Consumer Prices Index (YoY) (3Q)

4.6%

4.9%

5.3%

23:00

AUD

Conference Board Leading Index (AUG)

-0.1%

-

0.0% (R+)

5:00

JPY

Small Business Confidence (OCT)

46.4

-

47.2

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

German GfK Consumer Confidence Survey (NOV)

5.1

5.2

Medium

6:00

CHF

UBS Consumption Indicator (SEP)

-

0.79

Medium

6:45

EUR

French Consumer Confidence Indicator (OCT)

78

80

Low

8:00

EUR

Italian Retail Sales s.a. (MoM) (AUG)

-0.1%

-0.1%

Low

8:00

EUR

Italian Retail Sales (YoY) (AUG)

-2.3%

-2.4%

Low

8:30

GBP

BBA Loans for House Purchase (SEP)

36000

35226

Medium

8:30

GBP

Current Account (£) (2Q)

-9.0B

-9.4B

Medium

9:00

EUR

Italian Consumer Confidence Index s.a. (OCT)

97.6

98.5

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3768

1.3983

GBPUSD

1.5861

1.6077

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

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25 October 2011 05:53 GMT