5 Key Events for the Forex Market This Week 09-08-08

[DailyFx]

Forex traders will find that event risk will be somewhat limited for favorites like the US dollar and euro, and instead, the commodity dollars may prove to be the currencies to watch. The Reserve Bank of New Zealand is anticipated to cut rates on Wednesday, which could weigh on the New Zealand dollar. The US calendar will not be completely empty though, as US advance retail sales will hit the wires on Friday.



• Australian Retail Sales – September 8
Australian retail sales, which will be released at 21:30 EDT on Monday, are likely to fall negative for the second consecutive month in July. Downside risks loom for the Australian economy, as indicated by the Reserve Bank of Australia last week when they cut rates by 25bps to 7.00 percent. Indeed, RBA Governor Glenn Stevens said, “Indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has slowed.” If retail sales do indeed contract again, the news will add to expectations that the RBA will cut an additional 100bps within the next 12 months and weigh on the Australian dollar. On the other hand, a better than expected result could help the extremely oversold currency bounce from one-year lows.

• Reserve Bank of New Zealand Rate Decision – September 10
The Reserve Bank of New Zealand is widely expected to cut rates by 25bps to 7.75 percent for the second meeting in a row, according to 13 of the 14 economists polled by Bloomberg News. It is telling, though, that the last economist actually anticipates a 50bps cut. Indeed, the RBNZ signaled during their last meeting that additional reductions were on the way, as RBA Governor Alan Bollard said that as long as the inflation outlook “continues to improve and there is no excessive exchange-rate depreciation, we would expect to lower rates further.” Since the RBNZ’s first 25bp cut in five years on July 23, though, the New Zealand dollar is down over 11 percent against the US dollar, but this is unlikely to be deemed “excessive” and thus, we anticipate that a 25bp cut is in the works. The key to the New Zealand dollar’s reaction, though, will be RBNZ Governor Bollard’s post-meeting commentary. Credit Suisse overnight index swaps are already pricing in nearly 150bps worth of rate cuts within the next 12 months, but if Mr. Bollard mimics his policy statement from July, this sentiment will be exacerbated and the New Zealand dollar will likely plunge. On the other hand, suggesting that the RBNZ may pause next time could allow the currency to recover slightly.

• Australian Employment Change – September 10
The Australian labor markets have tightened substantially over the past few years, as the unemployment rate dropped to multi-decade lows of 4.0 percent in February. However, after the Reserve Bank of Australia left interest rates at a 16-year high of 7.25 percent for much of 2008, the labor markets have shown signs of deterioration, along with domestic demand in general. While the RBA did cut rates last week to 7.00 percent, the Australian unemployment rate is anticipated to pick up to a 9-month high of 4.4 percent. On the other hand, the net employment change is forecasted to rise by 5.9K, and this tends to have a greater impact on the Aussie than the unemployment rate. Indeed, like the US Non-Farm Payrolls release, the figure rarely meets expectations and can lead to volatile short-term price action for the Australian dollar immediately following the news at 21:30 EDT.

• New Zealand Retail Sales – September 11
On Thursday evening at 18:45 EDT, New Zealand retail sales will be released and the data could send the New Zealand dollar plunging. There are no consensus forecasts, but given the recent indications that the country’s economy continues to slow, we expect retail sales to fall negative or rise only very marginally. It is finally becoming clear that the Reserve Bank of New Zealand’s record high rates of 8.25 percent from late-2007 through the first half of 2008 are having the intended impact by leading consumption to drop, business activity to cool, and inflation pressures to ease.

• US Advance Retail Sales – September 12
Advance Retail Sales are expected to rise 0.3 percent in August and the index that excludes auto sales is forecasted to fall 0.2 percent, as consumers continue to spend, albeit at a slower pace. Their spending patterns, though, may be indicative of a continuing trend. According to the latest report from the International Council of Shopping Centers (ICSC), sales slowed to a 1.7 percent annual pace in August from 2.5 percent in July thanks to a pullback in spending on discretionary items such as apparel and furniture. However, spending actually increased at wholesale and discount stores, as consumers sought cheaper prices on food and household items. As a result, there is indeed potential for Advance Retail Sales to improve and add to the US dollar’s already-substantial gains. On the other hand, we also have to consider the fact that average gasoline prices fell from about $3.90/gallon toward $3.65/gallon. In recent months, the surge in gas prices alone has helped lift the overall index since it is not adjusted for inflation. Thus, recent declines could actually weigh on the headline reading and pushed Advance Retail Sales into negative territory for the second month in a row.

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

Questions? Comments? E-mail: tbelkas@dailyfx.com