Dollar, Major Currencies to Weigh US Data in Terms of Fed QE3 Bets

2012-07-26 07:25:00 Ilya Spivak, Head Strategist, APAC

Talking Points

Italian Yields on the Rise vs. German Counterparts Before Bond Auction
US Economic Data Likely to be Judged in Terms of Fed Stimulus Hopes
NZ Dollar Outperforms as RBNZ Hints Interest Rate Cuts Unlikely for Now

The economic calendar is relatively quiet in European hours, with an Italian bond auction amounting to the only somewhat market-moving item on the docket. Traders will look to average yield and bid-to-cover readings to gauge Eurozone sovereign stress levels. The spread between the return on Italian and benchmark German 10-year bonds edged higher ahead of the debt sale. Sentiment trends appear noncommittal with S&P 500 stock index futures are trading flat late into the Asian session.

The Kansas City Fed Manufacturing Activity survey comes into focus later in the day, with expectations calling for a mild improvement in July. Meanwhile, Durable Goods Orders and Pending Home Sales growth is forecast to slow in June. On balance, the outcomes are likely to be interpreted in the context of Federal Reserve stimulus speculation ahead of Friday’s second-quarter GDP print, with softer outcomes having scope to boost risk appetite as hopes for accommodation build.

The New Zealand Dollar outperformed in overnight trade after the RBNZ kept the benchmark interest rate on hold at 2.50 percent as expected and signaled a reduction in borrowing costs was not likely in the near term. RBNZ Governor Alan Bollard said inflation is expected to “settle near the mid-point of the target range over the medium term.” The Australian and Canadian Dollars likewise rose as stocks pushed higher in Asian trade, boosting demand for the sentiment-geared currencies. The newswires chalked up the advance to rising Fed QE3 expectations in the wake of yesterday’s disappointing US New Home Sales data.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
21:00	NZD	RBNZ Interest Rate Decision (JUL 26)	2.50%	2.50%	2.50%
23:50	JPY	Corporate Service Price (YoY) (JUN)	-0.3%	0.0%	0.1%

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
6:00	EUR	German Import Price Index (MoM) (JUN)	-0.9%	-0.7%	Low
6:00	EUR	German Import Price Index (YoY) (JUN)	1.9%	2.2%	Low
6:00	EUR	German GfK Consumer Confidence Survey (AUG)	5.8	5.8	Medium
8:00	EUR	Euro-Zone M3 s.a. (3M) (JUN)	2.7%	2.8%	Low
8:00	EUR	Euro-Zone M3 s.a. (YoY) (JUN)	2.9%	2.9%	Low
8:00	EUR	Italian Retail Sales s.a. (MoM) (MAY)	-0.3%	-1.6%	Low
8:00	EUR	Italian Retail Sales (YoY) (MAY)	-4.7%	-6.8%	Low
9:00	EUR	Italian Hourly Wages (MoM) (JUN)	0.1%	0.0%	Low
9:00	EUR	Italian Hourly Wages (YoY) (JUN)	1.4%	1.4%	Low
9:00	EUR	Italy to Sell €2.5B in 0-Cpn 2014 Bonds	-	-	Medium