Last week, the U.S. dollar registered some gains against most currencies around the world, but the gains were limited. As of now, the Federal Reserve is all set to hike rates in the month of December, even though inflation continues to remain weak. Statements made by top Fed officials clearly indicate the same. The news related to progress made on tax reforms, despite the fact there is a lot to be done, helped the greenback become stronger against many currencies.
Meanwhile, the euro somehow managed to keep its gains in spite of the deterioration of situation with respect to the Catalan crisis. However, Bank of England’s dovish remarks as regards raising interest rates as well as mixed data weighed down the pound. The yen also lost some ground because of improved chances Abe’s victory. The Aussie made some handsome gains on the basis of Australia’s jobs report, but the kiwi was the biggest mover. NZD/USD pair plunged because of the news that the Labour party will be leading the government instead of the National party which is more market-friendly.
The busy upcoming week features U.S. and U.K. GDP data and interest rate decision by the Bank of Canada and the European Central Bank, among others. Here is an outlook on some of the key releases:
#1: Australia CPI (10/25/2017 Wednesday 00:30 GMT)
In Australia, consumer prices rose by 1.9 percent on a year-on-year basis in the second quarter, edging lower from the 2-1/2 year high of 2.1 percent increase recorded in the first quarter of this year. The reading, however, came in below the market expectation of a 2.2 percent gain. The inflation rate declined mainly because of a slowdown in the cost of transport and housing.
On a quarter-on-quarter basis, consumer prices increased 0.2 percent after rising 0.5 percent in the previous quarter. Analysts had expected consumer prices to increase by 0.4 percent. Forecast for the third quarter: 0.8 percent increase in consumer prices
#2: Australia Trimmed Mean CPI (10/25/2017 Wednesday 00:30 GMT)
Trimmed mean CPI, which represents the core inflation rate, rose by 0.5 percent in the June quarter from the previous quarter. Forecast for the third quarter: 0.5 percent increase from the second quarter
#3: U.K. Preliminary GDP (10/25/2017 Wednesday 8:30 GMT)
In the second quarter, the U.K.’s GDP expanded 0.3 percent on a quarter-on-quarter basis. The second estimate for the quarter was not revised when announcing the final figure. However, the GDP growth rate for the first quarter was revised upward to represent 0.3 percent expansion. The growth in the second quarter was driven mainly by the increase in fixed investment. Household expenditure, which increased at a slower pace, also contributed to the growth. On the production front, positive contribution came only from the services industries. On a year-on-year basis, the economy grew by 1.5 percent, the slowest growth rate in four years, after advancing 1.8 percent in the first quarter. The reading came in below the previous estimate of 1.7 percent. Forecast for third quarter from the previous quarter: 0.3 percent expansion
#4: U.S. Durable Goods Orders (10/25/2017 Wednesday 12:30 GMT)
New orders for durable goods manufactured in the U.S. rose by 2.0 percent on a month-over-month basis in August, following the 6.8 percent decline in the previous month. The reading for the month beat analysts’ expectation for a one percent gain. Orders for transport equipment, which includes that for motor vehicles as well as parts, nondefense aircraft and parts increased. Orders for non-defense capital goods, excluding aircraft, or core durable goods orders and considered to be an indicator of business spending plans, increased by 0.5 percent (revised downward from 0.9 percent increase reported earlier) after the reading for the previous month was revised upward to represent an increase of 1.1 percent. Forecast for September: 1.1 percent and 0.5 percent increases in durable goods and core durable goods orders, respectively
#5: Bank of Canada Overnight Rate, Rate Statement and Monetary Policy Report (10/25/2017 Wednesday 14:00 GMT)
The Bank of Canada hiked the interest rates during two consecutive monetary policy committee meetings and this boosted the Canadian dollar. In the unexpected rate hike last month, the central bank raised the overnight rate by 25 basis points to 1.0 percent. The economic data that have been released are stronger than expected and are supportive of the central bank’s view that the Canadian economy is experiencing more broad-based and self-sustaining growth. The Bank and deposit rates were also raised by 25 bps points to 1.25 percent and 0.75 percent, respectively. The Bank of Canada is expected to leave the overnight rate unchanged at 1.0 percent during the meeting in October.
The Bank of Canada’s monetary policy report provides very valuable insight into prevailing inflation rate and economic conditions. These are the key factors based on which monetary policy decisions are arrived at. Traders always look for clues on the direction of future decisions.
The rate statement, released along with the monetary policy report, is the primary tool through which the central bank communicates with the investors about the most recent monetary policy decision. In addition to containing the outcome of the members’ decision, the rate statement provides a commentary on the economic conditions that impacted their decision. More importantly, the statement discusses the country’s economic outlook and offers clues on the direction of future decisions.
#6: Crude Oil Inventories (10/25/2017 Wednesday 14:30 GMT)
In the U.S., crude oil stocks dropped by 5.731 million barrels during the week that ended on October 13 after recording a decline of 2.747 million barrels in the previous week. Analysts had expected a drop of 4.242 million barrels in crude oil stocks. Meanwhile, gasoline stocks rose by 0.908 million barrels, following an increase of 2.490 million barrels in the prior week. The reading came in above analysts’ expectation for a 0.256 million barrel increase.
#7: Bank of Canada Press Conference (10/25/2017 Wednesday 15:15 GMT)
The Governor and the Senior Deputy Governor participate in a press conference that is held 45 minutes after the announcement of the interest rate decision. There are two parts to the press conference – reading a prepared statement and open press questions. As the questions lead to unscripted answers, markets remain volatile during this period.
#8: European Central Bank Minimum Bid Rate (10/26/2017 Thursday 11:45 GMT)
In the meeting held in September, the European Central Bank decided to hold the benchmark refinancing rate at the 0 percent level itself. At the same time, the central bank also confirmed that the net asset purchases would continue to run at the current rate of €60 billion per month until the end of this year because of the substantial monetary accommodation that is still needed in order to support inflation. Further, the central bank raised the GDP forecast for the year to 2.2 percent from the 1.9 percent growth predicted in June. This is the fastest growth rate expectation since 2007. Meanwhile, the inflation forecast for the year was maintained at the current level of 1.5 percent. However, the headline inflation forecast for 2018 and 2019 was brought down to 1.2 percent and 1.5 percent from 1.3 percent and 1.6 percent, respectively because of a stronger euro. Interest rate forecast for October: 0.0 percent
#9: European Central Bank Press Conference (10/26/2017 Thursday 12:30 GMT)
The President and Vice President of the European Central Bank participate in a press conference that is held 45 minutes after the announcement of the Minimum Bid Rate. The press conference lasts for about an hour and has two parts – reading a prepared statement and open to press questions. As the questions tend to lead to unscripted answers, heavy market volatility can be expected during the period.
#10: U.S. Unemployment Claims (10/26/2017 Thursday 12:30 GMT)
In the U.S., the number of people filing claims for jobless benefits declined by 22,000 to 222,000 during the week that ended on October 14. This is by far the lowest number of initial claims in as many as 44 years as people affected by hurricanes Irma and Harvey returned to their jobs. Further, the Columbus Day holiday impacted filling of claims. Analysts had expected unemployment claims to come down to 240,000. Forecast for next reporting period: 236,000 claims
#11: U.S. Preliminary Third Quarter GDP (10/27/2017 Friday 12:30 GMT)
After a weak start to 2017, economic growth in the U.S. picked up in the second quarter and touched the 3.1 percent annualized rate. The reading for the June quarter came in above the second estimate of 3.0 percent and also beat analysts’ expectation of 3.0 percent growth. The growth figure for the second quarter is the strongest since the first quarter of 2015. Private inventory investment rose by more than what was previously estimated. However, the general picture as far as economic growth is concerned remains the same. It is expected that growth rate will be somewhat slower in the third quarter because of the impact of the hurricanes.