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U.S. GDP and RBNZ Rate Decision Highlight Week of Event Risk

U.S. GDP and RBNZ Rate Decision Highlight Week of Event Risk

2010-07-26 20:52:00
John Rivera, Currency Analyst
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U.S. sentiment, demand and growth figures have the potential to initiate a new paradigm for the greenback if they point toward slower growth. The dollar has been the safe haven currency and bouts of risk aversion have favored it but growing interest rate differentials could start to see broader markets de-couple increasing the potential for dollar weakness. Indeed, the RBNZ is expected to raise its target rate widening the “Kiwi”’s spread.

  • U.S. Consumer Confidence (JUL) – July 27 – 14:00 GMT

The U.S. consumer sentiment reading is expected to slip to 51.0 from 52.9 but considering the precipitous drop in the University of Michigan reading, potential exists for a significant disappointment in the more volatile Conference’s Board’s indicator. Its implication for future domestic growth bestows on it the potential to impact risk sentiment and broader markets. The dollar could benefit from a flight to safety but deteriorating U.S. fundamentals may start to weigh on the greenback as yield expectations start to rise amongst its counterparts.

  • Australian Consumer Price Index (2Q) – July 28 – 01:30 GMT

Minutes from the RBA’s last policy meeting, where they left rates unchanged, indicated that the central bank will look to the upcoming second quarter consumer price index report as a guide for future monetary policy. Expectations are for inflation to have accelerated by 3.4% from 2.9% the quarter prior, which would place it above their target of 2-3%, raising the outlook for a rate hike and potentially providing Aussie support. Slower than expected price growth could sink the commodity dollar as speculation will rise that the RBA’s tightening cycle may come to an end.

  • U.S. Durable Goods Orders (JUN) – July 28– 12:30 GMT

The demand for long lasting goods is always a key gauge of the strength of the economy which makes the U.S. durable goods orders report a potential market mover. Forecasts are for a 1.0% increase which isn’t enough of an improvement to impact long-term outlooks, but if there is prevailing risk appetite the positive fundamental release could provide a boost. However, a shortfall in demand will add to the declining growth outlook for the U.S., potentially generating a flight to safety and dollar support.

  • RBNZ Rate Decision – July 28 --21:00 GMT

The Reserve Bank of New Zealand is forecasted to raise its target rate by 25 bps to 3.00% at its upcoming policy meeting. The announcement could spark support for the “Kiwi” on the back of its increasing interest rate differential. A rate hold could derail the New Zealand dollar as it would be interpreted as a sign that downside risks to the global economy are increasing. The central bank’s post release statements could also impact price action if policy makers take a dovish tone and signal that they may remain on hold going forward.

  • U.S. GDP (2Q A) -- July 30 – 12:30 GMT

The pace of U.S. growth in the second quarter is forecasted to have slowed to 2.5% from 2.7% the period prior. Dissipating government stimulus and the end of the inventory cycle are expected to have weighed on output with the consumer not yet ready to take the torch of spending. Signs that the weak labor market is having a greater toll on the economy would sink U.S. interest rate expectations further and potentially weighing on the dollar. However, a sharp downturn in the world’s largest economy could spark a broader flight to safety providing dollar strength which has been the typical response to weak U.S. fundamentals. Stronger than expected growth, will raise the outlook for the domestic and global economy, creating a potential catalyst for risk appetite.

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

Send questions or comments to jrivera@dailyfx.com

The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

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