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The Canadian dollar, Australian dollar, British pound, and US dollar will all face fairly heavy event risk during the coming week as the Bank of Canada will announce their latest rate decision, Australian inflation data will hit the wires, UK GDP results could reflect the worst economic contraction in almost 30 years, and US durable goods orders may tumble.
- Bank of Canada Rate Decision - April 21
The Canadian dollar could see a pickup in volatility on Tuesday at 9:00 ET as the Bank of Canada is expected to leave rates unchanged at 0.50 percent, according to a Bloomberg News poll of economists. However, as of Friday, Credit Suisse overnight index swaps were pricing in a 50 percent chance of a 25 basis point reduction to 0.25 percent. As it stands, economic conditions continued to deteriorate throughout Q1, as Ivey PMI has held below 50 for the fifth straight month in March, signaling a contraction in business activity, while the unemployment rate climbed to a seven-year high of 8.0 percent. That said, the Canadian dollar's reaction may hinge more upon the policy bias contained within the Bank's concurrent press release. Any indications that they may leave rates unchanged at their next meeting in order to await more data could send the Canadian dollar spiraling higher, while remarks suggesting that they are open to cutting rates later in the year or pursuing quantitative easing could send the currency lower.
- Australian Consumer Prices (1Q) - April 21
Australia's headline consumer price index is forecasted to have risen 0.5 percent during Q1, bringing the annual rate down to a more than one-year low of 2.8 percent from 3.7 percent. However, after the Reserve Bank of Australia surprisingly cut their cash rate target by 25 basis points to 3.00 percent, RBA Governor Glenn Stevens said that inflation over the medium term is likely to be lower than it has been over the past two years, suggesting these Q1 results could actually reflect a much more significant slowdown in price growth. That said, Stevens' policy statement also indicated that the RBA may leave rates unchanged going forward as the current stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead. All told, if we start to see consumer price growth fall below the RBA's 2 - 3 percent target range, the news could weigh on the Australian dollar. However, if inflation pressures prove to be stronger than anticipated, the currency could actually rise.
- Canadian Retail Sales (FEB) - April 23
The release of Canadian retail sales could prove to be disappointing, as spending is anticipated to have fallen during February at a rate of 0.3 percent. Indeed, with unemployment rates rising and business activity slowing, continued declines in retail sales are almost sure to come. If the indicator falls in line with or more than expectations, the Canadian dollar could pull back further, especially if the Bank of Canada suggests on April 21 that they may be open to making monetary policy more accommodative. However, if retail sales actually rise, the Canadian dollar could surge in response.
- UK Gross Domestic Product (1Q A) - April 24
The 04:30 ET advanced reading of Q1 GDP for the UK is forecasted to contract for the third straight quarter at a rate of -1.5 percent, the worst drop in nearly 29 years, which could drag the year-over-year rate down to match the Q1 1981 low of -3.8 percent The UK has been hit particularly hard by the credit crunch, especially since the country became one of the biggest financial centers in the world. This has translated into a full-on collapse of the housing market, climbing job losses, and weak consumption. Furthermore, with growth slowing around the world, demand for British exports has declined as well, putting a large burden on manufacturers. Overall, a greater-than-expected decline could lead the British pound lower as the data would raise the odds that the Bank of England will expand their quantitative easing efforts. On the other hand, if GDP is a bit better than forecasts, the currency could surge.
- US Durable Goods Orders (FEB) - March 25
Signs that domestic demand is showing no sign of recovery should continue to emerge as US Durable Goods Orders are forecasted to have dropped 1.5 percent in March and even excluding transportation is anticipated to fall 1.2 percent. All told, this would mark a return to disappointing results after the index surprisingly rose 3.5 percent in February, and while this will have the most impact on forex trading, the markets should keep an eye on non-defense capital goods orders excluding aircraft, as this number serves as a leading indicator for business investment. The 3-month annualized figure has fallen sharply over the past few months, and combined with the weak outlook for the headline reading, the news could weigh on risk appetite and subsequently provide a boost to the US dollar, thanks to increased flight-to-quality.
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
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