The dollar was mixed against the majors in the Wednesday session, largely confined within recent ranges in lackluster trading. The greenback recovered from its session lows versus the euro at 1.4350 to hover near the 1.4230-level, while pushing the Canadian dollar just shy of the 1.10-figure. New home sales posted a strong reading in July, surging by its largest figure in nearly 4-years, up by 9.6% to 433k units versus 384k units from June. Building permits were drifted by 1.1% to 564k units in July. Meanwhile, durable goods orders were sharply better than expected, posting a gain of 4.9% versus a 2.2% decline a month earlier in June. The excluding transports July durable goods orders also improved, edging higher by 0.8% compared with a 1.6% increase a month earlier. In the coming session, traders will look ahead to weekly jobless claims and more importantly, the preliminary reading for Q2 GDP. Weekly jobless claims are expected improve to 565k from 576k a week earlier. Meanwhile, economic growth in the second quarter is expected to post a 1.4% contraction, deteriorating further from a 1.0% contraction in the previous quarter. The Q2 PCE is expected to hold steady at 1.3%. The Canadian dollar, Australian dollar, US dollar, and euro all face major event risk next week from the most market-moving indicators available: GDP, central bank rate decisions, and employment data, including US non-farm payrolls (NFPs)
• Canadian GDP (Annualized) (2Q) - August 31, 8:30 ETThe Canadian economy is projected to have contracted for the third straight month in Q2, this time by 3 percent. Such a result would indicate a moderation in the pace of Canada’s decline, as GDP fell 5.39 percent in Q1 and 3.74 percent in Q4 2008. Generally speaking, exports are likely to remain a heavy weight on GDP, as the nation posted a record current account deficit during Q2 after exports fell C$9.3 billion, though this is somewhat better than the drop of C$19.9 billion in Q1. The consumer end of the line has shown more improvement, though, as the Canadian economy only lost 13,300 jobs in Q2, compared to a loss of nearly 273,000 in Q1, while retail sales picked up in May and June. Overall, there is potential for slightly better-than-anticipated result, which would likely offer a boost to the Canadian dollar, but if GDP actually falls by more than 3 percent, hopes that the Canadian economy will be one of the first to emerge from recession may be dashed.• Reserve Bank of Australian (RBA) Rate Decision - September 1, 00:30 ETThe Reserve Bank of Australia (RBA) is anticipated to leave their cash rate target unchanged at 00:30 ET for the fifth straight month at 3.00 percent, and the Australian dollar may only respond to a biased monetary policy statement. As it stands, Credit Suisse Overnight Index Swaps (OIS) are pricing in 191 basis points worth of rate increases by the RBA over the next 12 months, compared to 112 basis points a month ago, as economic data has shown slight improvements and the central bank has taken a more hawkish stance. Indeed, the RBA’s last policy statement dropped a line that said that "the outlook for inflation allows some scope for further easing of monetary policy," suggesting that they have no intention of cutting rates any further. If the RBA doesn’t bother to really change the statement, there may not be much of a market reaction, but if there are signs that the central bank is feeling more optimistic on the growth outlook, the Australian dollar could rally.• Federal Open Market Committee (FOMC) Meeting Minutes (AUG 12) - September 2, 14:00 ETThe main event risk for the US dollar on Wednesday will be the release of the minutes from the Federal Reserve’s last meeting on August 12. Following that meeting, the policy statement initially led Treasuries to sell-off and the dollar rallied sharply against the most popular currencies. However, a quick return to risk-taking pushed the greenback lower, as the Federal Open Market Committee said that even though “conditions in financial markets have improved further in recent weeks” the committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period”. At the same time, because the current "policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth", the committee has decided to gradually slow the pace of Treasury securities purchases. A reiteration of these statements has the potential to lift risk appetite further, but on the other hand, indications that FOMC members are feeling uneasy about the outlook for growth or the need to expand quantitative easing down the road could do quite the opposite.• European Central Bank Rate Decision - September 3, 7:45 ETThe European Central Bank is anticipated to leave rates unchanged at 1.00 percent at 7:45 ET. Where the currency ends the day, though, may have more to do with what ECB President Jean-Claude Trichet says during his post-meeting press conference at 08:30 ET. Traders will likely focus on any comments regarding the future of interest rates in the region, including whether 1 percent should be considered the “floor.” That said, the ECB will also be announcing new economic outlooks for the Euro-zone, and if we see any sort of revisions, the euro will likely act accordingly.• Canadian, US Employment Report Day - September 4, 7:00 ET and 8:30 ET At 7:00 ET, the Canadian net employment change may show a decline of 16,200 during August following a drop of 44,500 in July. Furthermore, the unemployment rate is anticipated to have risen to match the January 1998 high of 8.8 percent from 8.6 percent. Since the employment change tends to be a very volatile release, this should have the greater impact on the Canadian dollar, with a sharper than expected drop likely to weigh on the currency and an unexpected positive result likely to push it higher.At 8:30 ET when US non-farm payrolls (NFPs) is forecasted to show job losses for the twentieth straight month in August, though the rate of decline is anticipated to slow further. At the time of writing, Bloomberg News was calling for NFPs to decline by 227,000, which would be the smallest drop in a year. Meanwhile, the unemployment rate is projected to edge up to 9.5 percent from 9.4 percent, but ultimately, the NFP result will be the event to watch as it is extremely volatile and is one of the sole reports that impacts the US dollar from a pure fundamental point of view. A better-than-anticipated result is likely to provide a boost to the US dollar, but it will be interesting to see the impact of disappointing results as weak US data tends to weigh on risky assets and push the greenback higher amidst flight-to-quality.
• Canadian GDP (Annualized) (2Q) - August 31, 8:30 ETThe Canadian economy is projected to have contracted for the third straight month in Q2, this time by 3 percent. Such a result would indicate a moderation in the pace of Canada’s decline, as GDP fell 5.39 percent in Q1 and 3.74 percent in Q4 2008. Generally speaking, exports are likely to remain a heavy weight on GDP, as the nation posted a record current account deficit during Q2 after exports fell C$9.3 billion, though this is somewhat better than the drop of C$19.9 billion in Q1. The consumer end of the line has shown more improvement, though, as the Canadian economy only lost 13,300 jobs in Q2, compared to a loss of nearly 273,000 in Q1, while retail sales picked up in May and June. Overall, there is potential for slightly better-than-anticipated result, which would likely offer a boost to the Canadian dollar, but if GDP actually falls by more than 3 percent, hopes that the Canadian economy will be one of the first to emerge from recession may be dashed.• Reserve Bank of Australian (RBA) Rate Decision - September 1, 00:30 ETThe Reserve Bank of Australia (RBA) is anticipated to leave their cash rate target unchanged at 00:30 ET for the fifth straight month at 3.00 percent, and the Australian dollar may only respond to a biased monetary policy statement. As it stands, Credit Suisse Overnight Index Swaps (OIS) are pricing in 191 basis points worth of rate increases by the RBA over the next 12 months, compared to 112 basis points a month ago, as economic data has shown slight improvements and the central bank has taken a more hawkish stance. Indeed, the RBA’s last policy statement dropped a line that said that "the outlook for inflation allows some scope for further easing of monetary policy," suggesting that they have no intention of cutting rates any further. If the RBA doesn’t bother to really change the statement, there may not be much of a market reaction, but if there are signs that the central bank is feeling more optimistic on the growth outlook, the Australian dollar could rally.• Federal Open Market Committee (FOMC) Meeting Minutes (AUG 12) - September 2, 14:00 ETThe main event risk for the US dollar on Wednesday will be the release of the minutes from the Federal Reserve’s last meeting on August 12. Following that meeting, the policy statement initially led Treasuries to sell-off and the dollar rallied sharply against the most popular currencies. However, a quick return to risk-taking pushed the greenback lower, as the Federal Open Market Committee said that even though “conditions in financial markets have improved further in recent weeks” the committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period”. At the same time, because the current "policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth", the committee has decided to gradually slow the pace of Treasury securities purchases. A reiteration of these statements has the potential to lift risk appetite further, but on the other hand, indications that FOMC members are feeling uneasy about the outlook for growth or the need to expand quantitative easing down the road could do quite the opposite.• European Central Bank Rate Decision - September 3, 7:45 ETThe European Central Bank is anticipated to leave rates unchanged at 1.00 percent at 7:45 ET. Where the currency ends the day, though, may have more to do with what ECB President Jean-Claude Trichet says during his post-meeting press conference at 08:30 ET. Traders will likely focus on any comments regarding the future of interest rates in the region, including whether 1 percent should be considered the “floor.” That said, the ECB will also be announcing new economic outlooks for the Euro-zone, and if we see any sort of revisions, the euro will likely act accordingly.• Canadian, US Employment Report Day - September 4, 7:00 ET and 8:30 ET At 7:00 ET, the Canadian net employment change may show a decline of 16,200 during August following a drop of 44,500 in July. Furthermore, the unemployment rate is anticipated to have risen to match the January 1998 high of 8.8 percent from 8.6 percent. Since the employment change tends to be a very volatile release, this should have the greater impact on the Canadian dollar, with a sharper than expected drop likely to weigh on the currency and an unexpected positive result likely to push it higher.At 8:30 ET when US non-farm payrolls (NFPs) is forecasted to show job losses for the twentieth straight month in August, though the rate of decline is anticipated to slow further. At the time of writing, Bloomberg News was calling for NFPs to decline by 227,000, which would be the smallest drop in a year. Meanwhile, the unemployment rate is projected to edge up to 9.5 percent from 9.4 percent, but ultimately, the NFP result will be the event to watch as it is extremely volatile and is one of the sole reports that impacts the US dollar from a pure fundamental point of view. A better-than-anticipated result is likely to provide a boost to the US dollar, but it will be interesting to see the impact of disappointing results as weak US data tends to weigh on risky assets and push the greenback higher amidst flight-to-quality.
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