FX Markets Turn to US & Canadian GDP, US & German Inflation
- The week of Good Friday is unsurprisingly lighter on the economic calendar – but a few releases will provoke volatility in a lower volume environment.
- Data that typically flies under the radar – like a final GDP reading or sentiment – will come to the foreground ahead of Good Friday, Easter, and Passover.
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03/27 Tuesday | 14:00 GMT | USD Consumer Confidence Index (MAR)
In a non-holiday week, Consumer Confidence would normally get overlooked. However, given the relative lack of ‘high’ importance data on the calendar in the lead up to Good Friday, the March sentiment reading counts as top billing. While essentially a contemporaneous indicator of strength in US equity markets, the data print serves as a proxy for how consumers feel about their 401(k)s. Given that the reporting period came before the second-half of the month swing lower in US stocks, it seems possible that another reading near all-time highs could result. Accordingly, any US Dollar rally around the data would be worth fading.
03/28 Wednesday | 12:30 GMT | USD Gross Domestic Product Annualized (4Q T)
The third and final reading of annualized US GDP in Q4’17 is expected to come in at a revised growth rate of 2.7% from the +2.5% prior revision, still a stark decline relative to the +3.2% growth rate in Q3’17, according to a Bloomberg News survey. Overall, there still seems to be a sharp divide between ‘soft’ and ‘hard’ economic data, with confidence readings surging without a commensurate gain in actual economic activity. The New York Fed Nowcast forecast sees last quarter’s growth at +3.0%, a bit more rich than most surveys. Regardless of the print, any reading near +2.5% should keep the Fed’s focus on another rate hike in June.
03/29 Thursday | 12:00 GMT | EUR German Consumer Price Index (MAR P)
The European Central Bank sees EUR/USD finishing 2018 at 1.1700, and at its current exchange rate, it’s more than 6% above the central bank’s forecast. Year-over-year, the Euro trade-weighted exchange rate is up by +7.6%, a veritable headwind for inflation.Given that the ECB has made clear it wants to see inflation back near its +2% target on a sustainable basis before it sincerely exits all of its extraordinary, any signs that inflation is struggling could undercut speculation around the ECB removing its stimulus; a reaction that could sink the Euro.
Accordingly, as market participants are being forced to reconsider their bullish Euro bets, a look at the Eurozone’s largest economy will draw attention in an otherwise quiet week on the calendar. A Bloomberg News survey sees German inflation bumping up to +1.7% in March from +1.4% in February (y/y), a move in the right direction but by no means the necessary evidence to accelerate the ECB’s withdrawal of stimulus.
03/29 Thursday | 12:30 GMT | CAD Gross Domestic Product (JAN)
The first look at Canadian growth data in 2018 is expected to show a slight slowdown over the same period in 2017. January GDP is due in at +2.9% from +3.3% in December (y/y), and no annualized reading is due. Canadian data has held up quite strong in recent months, a perspective that the Canadian Dollar itself hasn’t shared since the NAFTA renegotiations and trade tensions with the United States spilled into the foreground. Indeed, despite growth readings hovering around +3% and inflation back above the BOC’s medium-term target of +2%, odds for another rate hike in the first half of 2018 have dropped from near 80% in the first week of February to below 60% today. The Canadian Dollar may be due for a snapback if the NAFTA negotiations calm down and focus returns to economic data.
03/29 Thursday | 12:30 GMT | USD PCE Core (FEB)
According to a Bloomberg News survey, US consumer prices were higher on a monthly-basis in February, although price pressures remain weak. The Fed’s preferred gauge of inflation, the PCE Core, is due in at +0.2% from +0.3% (m/m) and +1.6% from +1.5% (y/y). The expectation for a reaction depends largely on the perception that the Fed will either accelerate or decelerate their current path of projected rate hikes. As noted at the March FOMC meeting, “Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.” The equity market reaction will be key to determining the US Dollar’s direction thereafter, now that it has taken on the role of safe haven again.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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