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.

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.

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.