Given the substantial amount of volatility lingering in the markets, some pieces of economic data may fly under the radar while other releases have the potential to shake up the US dollar, Japanese yen, Canadian dollar, British pound, and New Zealand dollar. So, which events should forex traders be watching this week?
· Fed Chairman Bernanke Testifies at House Budget Committee on Economy – October 20
Commentary by Federal Reserve Chairman Ben Bernanke tends to be extremely market-moving, especially when it comes to the US dollar, Japanese yen, and stock markets. Given the jittery nature of the financial markets, as indicated by the near-record highs in the CBOE’s VIX Volatility Index, traders may be quick to respond to any rhetoric signaling that the Federal Reserve will cut rates at the end of the month or comments suggesting that economic and financial conditions are bound to worsen.
· Bank of Canada Rate Decision – October 21
The Bank of Canada is widely expected to cut rates by at least 25bps, though a Bloomberg News survey shows that 10 of the 17 economists polled are betting they will slash rates by 50bps to 2.00 percent. The confusion comes from the fact the Bank of Canada (BOC) just cut rates on October 8 in a coordinated effort with the Federal Reserve, European Central Bank, Bank of England, and Swiss National Bank, while Credit Suisse overnight index swaps show the markets pricing in a whopping 100bps worth of reductions during the next 12 months. However, looking at the BOC’s October 8 press release and recent economic data, it is clear that the central bank will indeed move to cut rates further in coming months, but given the resilience of the Canadian economy, they may not be quite so aggressive as to cut rates by 50bps so soon. Instead, we could see something along the lines of a 25bp cut to 2.25 percent or no change, along with a policy statement that suggests they will make monetary policy more accommodative going forward. Regardless, the news should have a huge impact on the Canadian dollar, but where the currency goes may have more to do with the bias reflected in the policy statement.
· Bank of England Meeting Minutes – October 22
The Bank of England’s meeting minutes tend to be a huge market-mover for the British pound, and this time is unlikely to be any different. During the October meeting, the BOE’s Monetary Policy Committee met a day early in order to take part in the October 8 coordinated rate cut, during which they reduced the Bank Rate by 50bps to 4.50 percent. The key to trading this release will be to gauge the rate count, as any dissents in favor of leaving rates unchanged could lead the British pound to jump as they would suggest the BOE may not immediately cut rates again at their next meeting on November 6. However, if the vote to cut rates was unanimous and the MPC’s discussion sounds dovish, Cable could pull back sharply.
· Canadian Retail Sales – October 22
Consumer spending in Canada is expected to have slipped 0.2 percent in August, but excluding autos, retail sales are forecasted to have risen 0.2 percent. However, there is potential for a surprisingly strong reading given the solid employment numbers we’ve seen lately. In fact, the Canadian economy has added on workers for the past two months, and a record 106.9K in September alone. Indeed, expansion 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. On the other hand, disappointing figures could trigger a sell-off in the currency. Traders should watch the October 20 release of Canadian wholesale sales as a leading indicator for headline retail sales.
· Reserve Bank of New Zealand Rate Decision– October 22
According to a Bloomberg News survey of 14 economists, 10 believe the Reserve Bank of New Zealand will cut rates by an incredible 100bps on October 22 to 6.50 percent while the rest are betting on a 50-75bp cut. While inflation measures remain very high, the New Zealand economy has officially fallen into recession as GDP contracted for two consecutive quarters (-0.3 percent in Q1, -0.2 percent in Q2). Furthermore, the credit crisis taking a harsh toll on New Zealand’s financial markets, especially since interest rates already remain restrictive at 7.5 percent (though this is down from June’s 10-year high of 8.25 percent). The key to the New Zealand dollar’s reaction, though, will be RBNZ Governor Bollard’s post-meeting commentary. If the RBNZ cuts rates by 100bps and signals that they will reduce rates further, this sentiment may be exacerbated and the New Zealand dollar will likely plunge. On the other hand, a small 25bp cut and comments suggesting that the RBNZ may pause next time could allow the currency to recover slightly.
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators. Questions? Comments? E-mail: tbelkas@dailyfx.com