Next week brings some very important news with it. On Tuesday we will see if the RBA will be hiking rates for the third consecutive time. There will be US unemployment data and a rate statement by the ECB. While the volume of data is not very high the importance of it is.

The market is slowly falling into risk aversion and it will have little reason to change course unless we get some new information.

Monday 5/3

No important news scheduled.

Tuesday 5/4

4:30 GMT Australian Interest Rate Decision

The expectation is for the RBA to hold, but this will be a close one. Don’t be surprised if they raise rates again. If they do it would be a short term gain for AUD, since there is a relatively high level of uncertainty about the decision. Watch the statement though for signs of the end of the rate hikes.

Wednesday 5/5

No important news scheduled.

Thursday 5/6

12:30 GMT ECB Interest Rate Statement

The ECB will continue to hold here, and for the foreseeable future as well. Trichet has little to no power over the Greece situation at this point, so his only option is to stand back and watch. Don’t expect much to come out of the statement.

Friday 5/7

12:30 GMT US Unemployment Rate

The unemployment rate in the US has stood at 9.7% for three months now. A lot of the employment strength has been due to seasonal adjustments by the BLS. The current down trend in unemployment could be tested here

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.

Today, the committee in charge of declaring the beginning and end of recessions announced that it was too early to declare the current economic slump over.

In a statement on NBER.org, the Business Cycle Dating Committee said, “Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature.”

This comes as no surprise to us here as IntegrityFX Plus’ Joshua Habben wrote in August of 2009 about the NBER’s lagging approach and the Fed’s subsequent action:

So under Greenspan, the Fed averaged a delay of 33 months between the recession ending and raising rates. There was even an average delay of 12 months between the NBER announcing the recession and the Fed raising rates. The Fed, despite its need to anticipate and act quickly, was unexpectedly behind the ball. One might wonder if the NBER would do a better job of monetary policy, but I’ll keep the focus on the timing, not the competence, of the Fed.

This data can be used to make a projection of when Bernanke will raise rates, specifically the earliest he would do so. The earliest the recession could reasonably be declared to have ended would be Q2 2009. So, under the assumption that the end of the recession occurred in June 2009, that yields the following projection:

1) The NBER will announce June 2009 was the end of the recession in February or March 2011.

2) The Federal Reserve will begin raising rates in March 2012.

Read the Entire Article From August Here

We’ll have to wait to find out if Joshua’s projections hold true, but judging from the lack of interest from NBER up to this point and the Fed’s staunch dovish stance, it seems right on track and can be used as a great indicator for interest rate expectations and the strength of the Dollar.

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.

So, the Reserve Bank of Australia, raised rates again, no surprise there. And in their statement that began and ended almost exactly the same as their last one, it was implied that they will be hiking them again in the future. They ended with the statement that they would be bringing interest rates back to their average levels and that this rate hike was “a further step in that process”.

There was some talk about the housing market in their statement, however at this point it doesn’t look like it will halt future rate hikes, but watch the housing data for a significant move toward weakness in the market. If this begins to falter then so do the odds of a rate increase.

Looking at the charts, AUDUSD has been pushing up on the high from March 17^th. If it can break past here it would face some considerable resistance around 0.9310. Despite pushing up on resistance, don’t forget that AUDUSD has been in a down trend since last November. So if the pair falters at the current level expect a return to support at 0.8600. The largest risk to AUDUSD strength is rate hikes out of the Federal Reserve, which are expected to come this year, as early as this summer.

In the yen pairs, AUDJPY has been the strongest pair. It bounced off of 86.18, which was the high from January 11^th. The benefit of trading AUDJPY over AUDUSD is that rate hikes in the US would be beneficial to AUDJPY. So, you can still play AUD strength without fearing an increase in dollar strength.

Typically I’m not very big on watching economic data for NZD JPY or CHF. It’s not that the data doesn’t matter, because it does, it just doesn’t have a strong immediate impact. Tomorrow is different however, as there is a chance that we could get a change of direction out of the New Zealand central bank. In their last decision in January, the RBNZ stated that a recovery had begun but would be waiting to raise rates until the middle of 2010.

As we have moved closer to that point, the data out of New Zealand has worsened. Take a look at their unemployment, which has reached the worst levels in a decade. They have also had particularly poor showing in their retail and manufacturing sectors.

The central bank also fear too high of a valuation in their currency, so the relative resilience of NZD will keep them from raising rates as soon as they believed they could.

Certainly the data supports holding off on any rates hikes in the foreseeable future. However, there is a pressure for New Zealand to keep up with Australia, who currently stands at a 4% interest rate. I don’t think the pressure will be enough to keep the rate hikes on their current schedule, but only time will tell.

A push back of the next rate increase would have a weakening effect on NZD; however, it would be short lived as the currency often ignores the fundamentals and just follows AUD. So if the rate hikes are pushed back don’t look to play a long term move, keep it short and don’t look for a breakout of the long term range.