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New Trends Could Emerge Following Week of Rate Decisions, GDP and NFP

New Trends Could Emerge Following Week of Rate Decisions, GDP and NFP

2010-02-26 21:08:00
John Rivera, Currency Analyst
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Canadian GDP (4Q)  – March 1, 13:30 GMT
Canadian GDP is forecasted to have grown 4.0% in the fourth quarter of 2009 driven by robust demand for raw materials from abroad. A faster pace of growth could raise the outlook for inflation which accelerated to 1.9% in January, just below the BoC’s 2.0% target.  The labor market has benefitted from the increase in output with companies adding 43,000 workers in January which may put upward pressure on prices. However, a -0.2 billion international merchandise trade balance in December raises the concern that exports may be slowing which could lead to a disappointing print and confirm policy makers fears that growth will stagnate. Nevertheless, a strong rebound in growth will raise the outlook for interest rates and could generate “loonie” support.
 
RBA Rate Decision – March 2, 03:30 GMT
The RBA is expected to raise their target rate to 4.00% from 3.75% as they look to head off future inflation. The central bank is the first of the majors to begin tightening and a fourth rate hike may be a little aggressive giving that their counterparts are still forecasting that they will remain on hold for some time. Therefore, continued tightening could spark an Australian dollar rally as it continues to widen its spread over the other major currencies. Manufacturing, consumption and inflation data along with comments from RBA Governor will precede the release and could potentially steal some of its thunder. Fourth quarter GDP figures will follow the monetary policy meeting with early forecasts for a 0.9% improvement, which may not be a strong enough pace to warrant another rate hike. A rate hold may be an ominous sign for global growth and could spark an extended bearish move. 
 
BoC Rate Decision – March 2, 14:00 GMT
Despite the BoC expected to keep its benchmark rate at 0.25%, the upcoming policy decision could present significant event risk. The central bank has been firm in its commitment to remain on hold until the second half of the year and any deviation from the prior rhetoric could raise yield expectations and provide “loonie” support. There is also speculation that policy makers will look to end their emergency lending measures following comments from Deputy Governor David Longworth that financial markets have improved “significantly”. The Canadian dollar could come under pressure if there aren’t any new developments and broader risk aversion re-emerges. 
 
BoE Rate Decision – March 4, 12:00 GMT 
Dovish comments from BoE governor King has raised speculation that the central bank could add to their asset purchase program which has sunk the pound. We could see further bearish sentiment if the MPC extends its quantitative easing measures at a time when their counterparts are taking steps to end their liquidity providing efforts. Another pause could spark a retracement of recent gains, but will most likely not be sufficient enough to change the current trend.  Policy makers may need to signal an end to their efforts before a turn in momentum can happen, which is highly unlikely given that Governor King recently expressed concerns over the banking system and credit markets.
 
U.S. Non-Farm Payrolls (FEB P) – February 5, 7:00 ET - 9:55 ET
The U.S. economy is expected to have given back another 50,000 jobs in January pushing the unemployment rate up to 9.8% from 9.7%. Last month saw the percentage of outwork Americans unexpectedly drop from 10.0% as the economy. Continued job losses will be disappointing as job growth was anticipated to have returned following the strong recovery in the fourth quarter. Indeed, U.S. GDP grew 5.9% during the last three months of the year as demand from abroad spurred gains in manufacturing. However, weakness in the service sector is an ominous sign as it accounts for 70% of GDP and the majority of jobs in the country. The lack of job creation will perpetuate the fear that the world’s largest economy will have a jobless recovery, which could spark a bout of risk aversion. Determining the impact on the dollar is a bit tricky as a flight to safety could generate greenback support. Conversely, a higher unemployment rate will make it formidable for the FOMC to begin tightening which would weigh on the reserve currency.  
 
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
 

Send questions or comments to jrivera@dailyfx.com 
 
 

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