This week, event risk will be fairly light out of the US, but traders should keep an eye out for any commentary by Federal Reserve members and Thursday’s US Durable Goods report. Meanwhile, rate decisions in Canada and New Zealand along with inflation data out of Australia could shake up the commodity dollars.
• Bank of Canada Rate Decision – April 22 The Bank of Canada is widely expected to cut rates by 50bps on Tuesday to 3.00 percent, the lowest target rate since October 2005, as inflation pressures subside, credit markets tighten, and a probable recession in the US threatens the Canadian economy. The most recent CPI report showed that the Bank of Canada’s core measure fell to 1.3 percent, which is the lowest reading since July 2005 and well below the Bank’s 2.0 percent target. During the March meeting, when the Bank cut rates by 50bps to 3.50 percent, the concurrent press release said that “the balance of risks around its January projection for inflation has clearly shifted to the downside…Further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to achieve the 2 per cent inflation target over the medium term.” Furthermore, recent economic indicators including Ivey PMI, employment data, and wholesale sales have pointed toward some slowing, which will give the Bank of Canada the green light to slash rates. The USD/CAD is likely to show an immediate reaction to the 9:00 EDT announcement. If the Bank cuts rates in line with expectations and suggests that more may be on the way in their press release, USD/CAD could surge higher. On the other hand, if the Bank only cuts rates by 25bp, the Canadian dollar could strengthen significantly across the majors and weigh heavily on USD/CAD. Discuss the rate decision and the Canadian dollar with other traders in the USD/CAD Forum. • Australian Consumer Prices – April 22 If the Federal Reserve is dovish and aggressively cutting rates, the Reserve Bank of Australia is quite the opposite and upcoming inflation data will highlight why. The RBA’s annualized weighted median measure of consumer prices for Q1 is expected to surge to 4.0 percent from 3.8 percent, and this figure is actually excluding the largest price gains and declines. Meanwhile, the headline CPI figure is forecasted to jump up to 4.0 percent from 3.0 percent. Indeed, rallies in the cost of food, energy, and raw material products have raised upside inflation risks globally, and Australia is no exception. Though the global outlook for growth remains uncertain and credit conditions have tightened domestically, the RBA is still considered to be somewhat hawkish. While the bank is not expected to raise rates during their May meeting, surprisingly strong inflation readings will lead the Australian dollar higher as the markets ramp up expectations for a 25bp rate increase to 7.25 percent. • Bank of England Meeting Minutes – April 23 The release of the minutes from the Bank of England’s April meeting – when they cut rates by 25bps to 5.00 percent – presents major event risk for GBP/USD, as they are likely to echo much of the same wary sentiment reflected in the Monetary Policy Committee’s press release following the meeting. Indeed, the release noted that “(c)redit conditions have tightened and the availability of credit appears to be worsening…the prospects for output growth abroad have deteriorated…business surveys suggest that growth has begun to moderate and that a margin of spare capacity will emerge during this year.” It will be important to watch not only where the BOE’s concerns lie, but also the vote count. The April rate decision likely had at least one vote from über-dove Blanchflower for a 50bp rate reduction, and the more votes in favor of a more accommodative monetary policy, the more the markets will sell off the British pound. • German IFO Survey – April 24 Sentiment amongst Germany’s investors is likely to turn more pessimistic in April, according to the IFO survey. The figure is scheduled to be released at 04:00 EDT, and this release tends to be a significant market-mover for the EUR/USD pair on a very short-term basis. Given the instability in the financial markets over the survey period along with signs that the European Central Bank will not even consider cutting rates, the IFO reading is likely to fall in line with – if not more than – expectations. Furthermore, this could weigh on EUR/USD, as signs continue to emerge that a turn may be in place. • US Durable Goods Orders – April 24 Can Boeing help the US durable goods orders figure to rebound? Unlikely, as airline orders may help to weigh on the headline reading somewhat. For the month of March, Boeing reported 99 airplane orders, down from 125 in January. 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 dropped for the past two months, and continued declines will not bode will for US GDP in the first quarter, especially as consumer spending wanes. See the DailyFX Calendar for a full list and timetable of upcoming event risks.
Written By Terri Belkas, Currency Analyst for DailyFX.com