Last week I wrote that I expected a large drop in AUDUSD if the RBA signaled that they would be holding rates steady. Well they did, and boy did we get a drop. The pair has fallen down to the 0.8800 level. The 0.8600 level still stands as a strong support level, and I believe that the week’s trend of a falling AUDUSD will continue into tomorrow.

As far as tomorrow’s unemployment rate goes, Yohay Elam of ForexCrunch.com writes that “a drop up to 9.5% or a rise to 9.9% won’t make a difference”, and I agree with him. There is a good chance that this move will bring AUDUSD down to its support near 0.8600. This would be much sooner than I expected, but the market doesn’t really care what I think.

Whether USD will continue to gain strength into next week, is a hard call to make at this point. But, generally if we have a strong negative week, the next week opens to the upside, so I would not want to be in an AUDUSD short over the weekend. Of course I wouldn’t want to be long either.

This week was a bit mixed and overall subdued for risk appetite. Despite the strong levels in equities, only USDJPY made strong moves toward risk appetite. The dollar was surprisingly strong when you considered the movements in other related markets.  There is a small amount of data to be released next week, but the releases are of a high level of significance.

Monday 4/26

No important news scheduled.

Tuesday 4/27

14:00 GMT US Consumer Confidence

We would have to see a reading approaching 60 for this to have a strong impact. For reference the survey reads at around 100 during good economic times, and hasn’t registered above 55 for almost a year and a half.

Wednesday 4/28

18:15 GMT Fed Funds Rate

The last release really solidified the Fed’s position to hold steady for the rest of the year. There was one dissenter in the last two releases, Hoeing, who wanted to begin raising rates. It is possible that he has convinced others to join him, but unlikely that he will get enough support to do it this time. However another dissenter could greatly increase the market’s perspective on future rate increases, strengthening the dollar.

21:00 GMT New Zealand Central Bank Rate

The RBA has stated that they expect to raise rates in the middle of the year. This sentiment will most likely be reiterated, as they hold rates steady. However if they back down from this stance expect NZD to weaken on the news. NZD may also get a small round of buying if they confirm their position, but not much.

Thursday 4/29

No important news scheduled

Friday 4/30

12:30 GMT Canadian and US GDP

The Canadian release is a final release so there should be little surprises there. The US release is the advance one so it could easily surprise the market, so be extra cautious.

The market is not looking promising for risk appetite this week. Equities broke down below 1200 on Friday, and they remained under that mark in todays trading. The talk is that the SEC’s investigation into Goldman Sachs is what is causing this risk aversion, that may be the case but this type of news rarely has a lasting impact in the market, I believe that there is still hope for risk appetite this week.

Despite the poor showing in the equities market, AUDUSD made back half of its losses that it incurred since last Thursday. The pair still has a bit of strength left in it and looks to have set a course for 0.9285.  EURUSD has followed the same general movement as AUDUSD but a bit more subdued, although any short term gains in EURUSD would have a hard time breaking above 1.3515.

The one pair that remained intertwined in the equity price action was USDCAD. The pair has held on to its gains from last week. Partially to blame is its proximity to parity, which always seem to make USDCAD act outside of the normal correlations. The other, perhaps more important, reason for the relative strength of USD against CAD is the movement in oil which has fallen to just above 80 dollar a barrel in the last few trading days.

The long term trend is still in favor of risk appetite however, it looks like the most likely scenario is for the market to take a breather in the short run. This is only natural when you look at the price action since February.

After today’s announcement it is clear that Australia is continuing on its course to tighten monetary policy. The consensus is that they are targeting a 5.25% interest rate, according to a recent Bloomberg article. But, what about the rest of the world?

According to Bloomberg we will have to wait some time until we get rate hikes outside of Australia.

Policy makers have “gotten their eye off the immediate ball, which is deflation risk,” said Joseph Gagnon, a former Fed official who is now a senior fellow at the Peterson Institute for International Economics in Washington. “It’s misguided for anybody to be talking about exiting” from stimulus during the next year.

Trichet’s ECB Governing Council convenes April 8 as Mark Wall, Deutsche Bank AG’s chief euro-area economist, and Janet Henry, HSBC Holdings Plc’s chief European economist, scrap forecasts for the refinancing rate to be raised this year from a record-low 1 percent. Both now expect the first increase since July 2008 to come next March.

Major central banks “are going to stay on hold longer than otherwise, keeping zero rates or near-zero rates at least to the middle of next year,” Nouriel Roubini, a New York University professor and chairman of Roubini Global Economics LLC in New York, said in an interview.

According to the Fed, inflation will be kept at bay for quite some time now. In other words, there will be no interest rate hikes for quite some time. The Fed has stuck to the term “an extended period” so look for the exclusion of this term to signal the beginning of a move toward rate hikes.

It looks like AUDUSD has considerable fundamental strength behind it, possibly enough to return to its highs, if not break them.

The entire Bloomberg Article can be read here.

This past week brought us some good information in the shape of the FOMC statement. The Fed gave a slightly upgraded outlook on the economy, and more or less stated that raising the Fed Funds rate would be the last step in their tightening cycle. It looks like we will not be losing these depressed rates anytime soon. Risk appetite built up in the beginning of this week but Friday brought risk aversion. Will next week reverse today’s action or continue it?

When we look ahead to next week’s data releases there is little to get excited about. For most traders this is good news, but be careful it’s usually when no one is watching that the news has the most impact.

Monday 3/22

20:30 GMT

Treasury Secretary Geithner will be speaking at this time. He will be speaking about financial reforms so this has potential to move equity markets, if something surprising is said, which has a large impact on risk based currencies, especially AUD and EUR.

Tuesday 3/23

9:30 GMT

The BoE is expecting that inflation will start coming down so as long as we get that don’t expect too much. However, a higher than expected reading could spook the market into thinking that they would raise rates sooner than expected, strengthening GBP.

Wednesday 3/24

12:30 GMT

Durable goods data is due out of the US. This generally comes in out of line with expectations, but the market is highly variable in its response. With the light news load for next week, this has potential to cause a shock in the market.

21:45 GMT

New Zealand GDP looks to be a strong news evet, given the high levels in AUDNZD. Both currencies are set to raise rates within a few months, so a release of this level of importance will be reflected in the Forex market.

Thursday 3/25

9:30 GMT

Once again the risk for news out of England is for too much inflation. With expectations of falling inflation, the BoE is set to hold rates steady.

14:00 GMT

More testimony out of Bernanke. His prepared statement has already been released, this is all about the questioning. An event with a highly variable effect on the market, you should at least be aware of it.

Friday 3/26

No important event.

There is little doubt that from a fundamental perspective the Australian dollar is much stronger than its New Zealand counterpart. For the last two weeks however AUD has been losing ground to NZD, but AUDNZD has begun to bounce off of former resistance at 1.2850. Will the pair begin to trekking upward again now? I don’t believe so. The problem is that New Zealand is set to raise interest rates in the next few months, and while rates in Australia will be rising as well, they have already started their rate hike cycle. Since New Zealand will just be starting theirs their currency has more to gain from the first initial rate hikes.

This will be putting a downward pressure on AUDNZD, the good news is that since both countries will be increasing interest rates their currency cross should follow a clearly defined range, until one of them ends their cycle. I looks like the top of the range will be 1.2900, just above the current price.

Last Friday proved to be a strong showing for the US unemployment data, giving a boost to risk appetite and taking strength out of the dollar. This week, on the other hand, has little market moving data set to be released. Expect the first half of the week to move in a technical fashion since any important data will not be released until Thursday.

Monday

No important data.

Tuesday

No important data.

Wednesday

0:30 GMT

The fear for AUD is that they are in a housing bubble much like the US. However the home loan data is far too variable to be a stable predictor for the housing market, don’t expect a reaction to its release

9:30 GMT

The manufacturing production data for GBP is unlikely to have an impact either, this data is mainly indicative of a slowing economy but does not do well at signaling a recovery.

20:00 GMT

The interest rate for NZD is not expected to change, not even for a while. New Zealand and Australia may be close to each other but their economies are worlds apart. Don’t look for a recovery out of New Zealand for some time.

Thursday

0:30 GMT

The Australian employment data has been surprising to the upside, and I don’t expect that to change for this release. AUD has been strong so look for this data to continue that strength.

13:00 GMT

If there is a market event that could challenge the current risk appetite in the market it is the CHF interest rate statement. If the Swiss Bank further strengthens their intervention stance then the market will react adversely to risk, but if they shy further away from intervention citing stronger economic conditions then look for the risky currencies to gain strength.

Friday

12:00 GMT

The Canadian economy has been surprisingly resilient. The Employment data will surprise as positive for CAD if it surprises at all.

13:30 GMT

The US retail data may be coming in too late in the week to have any real impact, but it has been strong and if we are in recovery mode data like this should be surprisingly positive.

The unemployment figure that will be released tomorrow is fake. It leaves out so much data, such as discouraged workers and underemployed workers. According to shadowstats.com the real unemployment rate is well over 20% and the broadest measure of unemployment out of the Bureau of Labor Statistics is over 15%. Yet what all of these numbers have in common is that they all change at a relatively similar rate. So, while the number is misleading, the important part to watch is the change in unemployment number.

The expectation for tomorrow is a 0.1% increase in the unemployment number. If we get any significant change, I believe that it will be a significant decrease in unemployment. Looking historically at the data release, during times of rising unemployment the forecasts are consistently too low while during falling unemployment forecasts are too high. The current trend is for falling unemployment so I am expecting the forecast to be too high. Does this mean we will get a boost to risk appetite? Not necessarily, the numbers have to come in low enough for that to happen. A reading 0.1% lower than expected would not be market moving but if it is 0.3% or more off from the expectations, look for the markets to start buying risk.

On releases that differ by a large amount, we have seen the markets run with the news throughout the trading day, so it is not recommended to trade the event itself as the low liquidity makes the market very erratic. Instead wait for the release, and if it is a big enough surprise then look to follow the momentum.

Only a few times a year does a week like this happen. We get four interest rate decisions. They come from Australia, Canada, the UK and the EU. Sadly only one of these is expected to actually change their interest rate, but that makes this week no less significant. The most important aspect of a rate decision is the accompanying statement from the central bank, hopefully giving insight to what their next decision will be.

Monday

13:30 GMT

GDP out of Canada had a good reading on Monday; it was 0.20% above expectations, and gave significant strength to CAD

15:00 GMT

The manufacturing PMI came out below expectations but was still above 50, which is in expansionary levels. The market reacted favorably to this news.

Tuesday

0:30 GMT

Before their rate decision, there will be two news releases out of Australia: building approvals and retail sales. They are both expected to be positive, but building approvals is expected to be lower than last month while sales are expected to be on the rise, look for a reaction on stronger numbers, since the central bank is expecting the economy to return to a moderate growth.

3:30 GMT

Australia’s is the week’s first rate decision and the only one expected to change. They held steady last time after a series of rate hikes and are expected to increase their rate by 0.25%. Look for their statement to point to a hold in their next meeting, which could weigh on AUD

14:00 GMT

The Canadian interest rate decision follows the Australians. They will be holding steady at 0.25%. It is unlikely that they will be raising rates for some time now. They do not want CAD to be too strong and would like it to find support significantly above parity.

Wednesday

0:30 GMT

Australian GDP will be released and is expected to come in at 0.9%. Since the bank is expecting a return to normal growth rates, a higher than expected GDP would be quite market moving.

Thursday

0:30 GMT

The Australian trade balance will be released, and like the GDP numbers the risk is for too strong numbers.

12:00 GMT

Since the BoE will be holding rates steady we will not be hearing a statement out of that central bank.

12:45 GMT

The ECB will be holding their rate steady as well; however they will release a statement, about an hour later, but don’t expect much in terms of the timing of the next rate hike.

15:00 GMT

The Canadian PMI is released on Thursday; it is expected to move significantly into the expansionary levels, which should strengthen CAD.

Friday

9:30 GMT

Early GBP inflation data will be released in the form of PPI numbers. Remember that the BoE is expecting that inflation will come down over time so if this comes in above expectations the chance of a rate hike at the next decision could be greatly increased.

13:30 GMT

The unemployment rate is expected to tick up a small amount, however it could easily come in under expectations giving the market something to buy risk on.

This week has a steady flow of news coming to be released. The primary concerns are inflation, GDP and testimony by Federal Reserve Chairman Bernanke. Watch for the Chairman to reaffirm what he said in his statement last Thursday about a return to normalcy and that the worst of this economic downturn is behind us.

Monday

No major events.

Tuesday

2:00 GMT

The inflation expectations out of New Zealand are expected to increase by more this quarter. It is unlikely that we would see a rate hike out of them since unlike Australia they do not have the growth to allow for the increases.

9:00 GMT

The Ifo numbers have been strong the last few months, however the worry out of Greece will likely see this confidence squashed.

9:15 GMT

Inflation is up in the UK, however the Bank of England is ignoring this fact on the basis that they believe it to only be temporary. Expect more of this talk and that they will keep rates steady for some time.

15:00 GMT

Two weeks ago the consumer sentiment came in slightly below expectations, but the market was not affected by this news, the market seems to be ignoring the consumer at this point in time.

Wednesday

15:00 GMT

Wednesday is the first in a two testimony by Chairman Bernanke to congress. This event is a tossup and its impact depends on what questions are presented to him. It is expected that he will assure that last week’s increase in the discount rate was a one shot deal and that there will be no increase in the fed funds rate in the near future.

Thursday

12:45 GMT

One of the reasons that the Bank of England believes that inflation will be temporary is that there will not be the level of consumption to sustain it. However the sales data is in an uptrend so a positive reading here would put another dent in the BoE’s argument and push them toward a rate hike sooner.

13:30 GMT

The durable goods data only impacts the market about half of the time and with GDP numbers being released the next day , and Bernanke’s testimony continuing soon after this data release, don’t look for any reaction to the durable goods number.

14:00 GMT

This is the second half of Bernanke’s testimony to congress, expect more of what happened on Wednesday.

Friday

13:30 GMT

The US will release the preliminary value for its quarterly GDP. The expectation is for about a 5.5% increase, however this expectation is a bit high so look for a lower than expected reading, which is not necessarily a bad thing given the low federal funds rate.