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Growth Data Next Week Comes Ahead of Key Rate Decisions

Growth Data Next Week Comes Ahead of Key Rate Decisions

2011-05-27 20:38:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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The week ahead has an intriguing mix of data on the docket, with key growth releases on the docket for Australia and Canada. The United States also features two key releases, a gauge of American consumers’ confidence, and the jobs report on the American economy. The following few weeks are lining up to be particularly interesting, given the considerable shift in the market’s appetite for risk as the European sovereign debt situation has unwound, and is seemingly reaching its boiling point. For the United States, June marks the month that the Federal Reserve has pledged to wind-down its stimulus plan, which, if discontinued completely, could lead to a U.S. Dollar rally, and/or a major pull-back in equity markets around the globe. For now the, the week ahead will give traders insight into how such loose monetary policy has affected the growth rates and policy decisions of countries across the globe.

  • Canada Gross Domestic Product (YoY) (MAR): May 30 – 12:30 GMT

Canadian gross domestic data surprised the market upon its last release, showing that the economy grew at a 3.3 percent rate, faster than the 3.1 percent rate originally anticipated, in the fourth quarter. The economy is expected to continue at a fast rate, as a strong Canadian Dollar has enabled Canadian consumers to protect their purchasing power without worrying about inflation. According to a Bloomberg News survey, the median estimate for the March GDP reading is a 2.6 percent annualized rate. The reading could very well meet this: the unemployment rate dropped to 7.6 percent, continuing the trend that the Canadian economy is the only advanced economy to have taken back and added jobs since the recession; the leading indicators report also showed expansion, growing at a 0.8 percent clip, suggesting that the outlook for the economy is headed in a strong direction for the next few months. Generally speaking, however, because the components of GDP are well-documented before the release of the aggregate number, the price action sparked onto Loonie-crosses could be limited. Join a DailyFX analyst for live coverage of event!

  • Bank of Canada Rate Decision (MAY 31): May 31 – 13:00 GMT

Canada’s ability to maintain stable growth, as of the last reading, a 2.9 percent annualized rate in February, coupled with a contained inflation rate of 3.3 percent year-over-year in April, is one of the main reasons it is one of the world’s strongest economies. To this end, the ability to contain inflation should be credited to the strength of the Loonie, which is up 2.06 percent against the U.S. Dollar thus far in 2011. That being said, the Bank of Canada is widely expected to leave its key interest rate on hold at their meeting on Tuesday, at 1.00 percent. The Overnight Index Swaps shows that 74.0-bps are priced into the Loonie for the next 12-months, with a mere 2.0 percent chance of a 25-basis points rate hike at their next meeting on Tuesday. This has dropped slightly, when on May 5, the markets were pricing in 96.0-bps for the Loonie. Accordingly, commentary following the release is crucial, as policymakers could begin to employ more hawkish rhetoric as a shift back towards policy ‘normalization’ appears to be underway.Join a DailyFX analyst for live coverage of event!

  • U.S. Consumer Confidence (MAY): May 31 – 14:00 GMT

Consumer confidence is expected to remain below sixty once more, after falling below the key level in March. A reading below 70.0 would mark the third consecutive month in which American consumer confidence has registered below said level, as it appears the lagging housing market, as evidenced by today’s pending home sales report, is weighing on confidence. While Americans are becoming more upbeat about the state of the labor market, until there is a substantial shift in the health of the housing market, it is likely that Americans will continue to be pessimistic on the state of the economy. Similarly, peripheral events outside of the United States could also be weighing on confidence. For one, the continued tension in the Middle East and North Africa region, as well as rising price pressures around the globe have weighed on sentiment over the past few months. On the other hand, as the European sovereign debt situation rears its head once more, Americans could be getting more concerned with the state of U.S. debt, which is a hot-button issue among American politicians as the federal government approaches its debt ceiling. Another weak reading will set the tone for another tough week for the Greenback, as one would expect a deteriorating outlook for the economy to be followed by less consumption, and depressed growth figures down the road.

  • Australia Gross Domestic Product (1Q): June 1 – 01:30 GMT

The Australian economy is forecasted to have slowed in the first quarter, with the median forecast as per a Bloomberg News survey calling for a 0.3 percent decline in growth, after growing by 0.7 percent in the fourth quarter. Similarly, the year-over-year figure looks to come in slightly lower as well, with the forecast showing a 1.8 percent annual rate, versus a 2.7 percent growth rate in the prior period. A strong Australian Dollar relative to its counterparts is likely to have weighed on the trade balance in the first quarter, which would have negatively affected the Australian export market. A negative would not be a surprise by any means; retail sales contracted by 0.5 percent in March, while home loans declined. This could be a temporary setback for Australia, as their 4.9 percent unemployment rate is particularly strong, compared to that of the European Union, Great Britain, and the United States. Because the components of GDP are well-documented before the aggregate figure, the volatility across Aussie-based pairs could be limited, unless there is a major miss on the data. Join a DailyFX analyst for live coverage of event!

  • U.S. Change in Non-farm Payrolls (MAY): June 3 – 12:30 GMT

Payroll figures cruised past expectations last month, expanding by 244,000 jobs, versus the 185,000 anticipated. The nonfarm payrolls report is historically market moving, and will like spark significant price action on Friday. If payrolls beat expectations, expect the Dollar to buck its recent trend, as evidence would then exists for interest rate hawks to step up rhetoric, and talk down the talk of a third round of quantitative easing. True, another round of payrolls at or above expectations will certainly support Federal Reserve Chairman Ben Bernanke’s postulation that there are “grounds for optimism” about improvements in the labor market, although it has been projected that there needs to be at least 125,000 jobs added every month for the labor market to keep up with population growth. Also featured on Friday will be the Unemployment Rate, which after rising back to 9.0 percent, is forecasted to fall back to 8.9 percent. Join a DailyFX analyst for live coverage of event!

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

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@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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