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The 5 Most Important Events for the Forex Market This Week

Monday, 31 March 2008 05:05:50 GMT

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Written by Terri Belkas, Currency Analyst

Event risk for the forex market lies primarily on the US dollar side, as Fed Chairman Bernanke is scheduled to speak, Non-farm Payrolls will be released, and the ISM reports for the manufacturing and services sector will hit the wires. Meanwhile, the commodity dollars could see choppy price action not only from shifts in oil and gold prices, but also from the Reserve Bank of Australia’s rate decision (will they dare hike?) and Canadian employment data.

What to Watch This Week
 
·          Reserve Bank of Australia Rate Decision – March 31
On March 31 at 23:30 EDT, the Reserve Bank of Australia is widely expected to announce that they will leave the cash target steady at a 12-year high of 7.25 percent after hiking it by 25bps on February 4 and March 3. Since the last meeting, data has pointed to additional inflation pressures as Q4 GDP proved to be stronger than expected, the trade deficit widened on a surge in imports, and the unemployment rate surprisingly slipped to yet another multi-decade low of 4.0 percent. Meanwhile, the minutes of the RBA’s last policy meeting showed that CPI was expected to “be a little above 4 percent in the short term,” highlighting the Bank’s staunchly hawkish bias. Overall, the risks are certainly to the upside for a surprise rate hike, but with the credit crunch remaining a problem globally, the RBA may find it more prudent to leave the cash target unchanged. Nevertheless, Australian dollar traders should watch RBA Governor Glenn Stevens’s monetary policy statement immediately after the rate announcement for indications of the Bank’s bias going forward.
 
·          US ISM Manufacturing – April 1
The Institute for Supply Management is expected to report that their survey of conditions in the manufacturing sector fell to a nearly five-year low of 47.5 in March from 48.3. Data from the Philadelphia and Richmond Federal Reserve regions showed a mild improvement during the month. Nevertheless, the Philly Fed index remained very much in contractionary territory, while the Richmond Fed index edged up to a six-month high. That said, these are both very volatile reports, but given broadly weak domestic demand in the US, the risks are tilted to the downside for the ISM manufacturing release. The employment component will also be watched carefully as a gauge for Friday’s Non-farm Payroll report.
 
·          Fed Chairman Ben Bernanke Testifies Before Joint Economic Committee – April 2
On April 2 at 9:30 EDT, Federal Reserve Chairman Ben Bernanke will testify before the Joint Economic Committee. Bernanke’s words are taken as gospel throughout the forex, equity, and fixed income markets, especially if his comments suggest any sort of bias within the FOMC. Watch for talk about inflation, credit conditions, employment, and the housing markets and check out our Instant Insight on www.dailyfx.com immediately following the testimony for our view on how this will impact Fed rate cut expectations and more importantly, the US dollar.
 
·          US ISM Non-Manufacturing – April 3
Conditions in US non-manufacturing sector – which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance – are anticipated to have deteriorated in March, as the Institute for Supply Management index is estimated to fall to 48.5 from 49.3. If the index holds below the 50 level as expected, the news will be a very bearish sign for the US economy as the data would only add to the mountain of evidence pointing towards a recession, particularly in the services sector. Like the ISM Manufacturing report, the employment component of ISM Non-Manufacturing will be watched carefully as a gauge for Friday’s Non-farm Payroll report.
 
·          NFP Day! – April 4
When we refer to Non-farm Payrolls (NFPs), we are typically talking about the US labor market report. Indeed, this news release at 8:30 EDT is a known market-mover since the number is notoriously difficult to handicap, and traders should keep an eye out for the NFP Preview on Thursday in order to get a sense of how the data will fare. Our bias as of Monday: NFPs could fall negative for the third consecutive month, which would significantly raise expectations for another sharp rate cut by the Federal Reserve at the end of April.
 
However, there’s another labor market report to watch before US NFPs: the Canadian net employment change at 7:00 EDT. This release is essentially “the other NFP” report, as the data tends to be highly market-moving for the Canadian dollar and rarely meets estimates. Lately, the net employment change has proven to be much better than forecasts and tends to lead the USD/CAD pair to plunge sharply in the minutes after the news hits the wires. However, follow-through during the rest of the day tends to be limited. Check in to see what other traders think about the USD/CAD pair and the Canadian data post-release in the DailyFX USD/CAD Forum.





Written by Terri Belkas, Currency Analyst of Forex Capital Markets LLC, DailyFX.com

Tell us what you think about this article. Email tbelkas@dailyfx.com

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