Forex Weekly Outlook September 19-23

The US dollar had a positive week, resisting unconvincing data. Now comes the biggest test: the Fed decision. In addition, we have US Building Permits, rate decisions in Japan and in New Zealand, as well as other events. These are the main events for this week. Join us as we explore the market movers coming our way.

Last week, US data was missed as retail sales fell more than anticipated, dropping 0.3% in August amid weak purchases of automobiles and a range other products, suggesting weaker domestic demand. This report could diminish chances of a Federal Reserve interest rate hike this week. Meanwhile, the cost of living in the U.S. edged up more than expected in August, rising 0.2% after a flat reading in the previous month, indicating that inflation continues to move toward the Federal Reserve’s goal, but very slowly. Consumers are not really confident. Will the Fed raise rates this week?  Let’s start:

1. US Building Permits: Tuesday, 12:30. The number of building permits issued in July ticked down 0.1% from the prior month to 1.15 million units. Economists expected a reading of 1.16 million. This is a sign of caution for the coming months. However,  housing starts had increased 2.1% from June to an annual rate of 1.211 million, hitting their highest level since February. Nevertheless, the wider picture for housing remains active. The number of new residential permits is expected to rise to 1.17 million in August.
2. Stephen Poloz speaks: Tuesday, 17:45. BOC Governor Stephen Poloz will speak in Quebec. Last week, Popoz placed China as the biggest downside risk on Canada’s growth prospects, noting that the world’s biggest resource importer is dealing with widening economic imbalances and stresses in its financial system which could affect Chinese growth. Any setback in Chinese expansion will directly impact Canadian growth. BOC Governor acknowledged that the Canadian recovery has been slow amid uncertainty about future prospects. However, continuing high levels of household debt remains Canada’s biggest concern.
3. Japan rate decision: Wednesday. The Bank of Japan said it would double its annual purchases of equity funds to ¥6tn from 3.3 billion at its policy meeting in July, leaving the door open for further stimulus measures in September. Kuroda noted there all options are open in regard to negative interest rates and asset purchases. However, the main downtrend comes from international uncertainty connected to the UK Brexit and the slowdown in emerging economies. More:  USD/JPY: Preparing For Another Disappointing BoJ Meeting.
4. US Crude Oil Inventories: Wednesday, 14:30. Crude oil inventories fell by 600,000 barrels last week to 510.8 million barrels. The reading was better than the 2.8 million addition expected by analysts, but the contraction was relatively mild. This positive trend should calm the market. Gasoline inventories rose by 600,000 barrels, after a 4.2-million-barrel decline in the previous week. Distillate fuel inventories edged up 4.6 million barrels, after rising by 3.4 million barrels in the week before.
5. US  Fed Decision: Wednesday: statement and projections at 18:00, Yellen’s press conference at 18:30. This is one of the most highly anticipated events in recent months. The particular September event also consists of updated growth, employment, and inflation forecasts as well as the path for interest rates, aka “the dot plot.” The last projections laid out in June, still saw two rate hikes in 2016, and Yellen  said: “the case for a rate hike has strengthened.” However,  this was not a “smoking gun” for a rate hike. Besides, other  members were more dovish, and the data just isn’t there. Growth has been poor in the three quarters ending in June, and inflation is going nowhere fast. Also, employment is just not strong enough. While jobs are gained at a steady rate, wages are going two steps forward, one step backwards. In the extraordinary case of a rate hike, the dollar will shoot to the sky. In the more likely scenario in which rates remain unchanged,  the focus will be on the dot-plot as well as the statement. A more hawkish one, or at least one that leaves the door open for a hike in December, after the elections, will continue assisting the dollar, going with the trend. A dovish statement, or even a dot-plot which  excludes a hike this year, could reverse the course for the greenback. More: 10 reasons why the FED will NOT hike in September.
6. NZ rate decision: Wednesday, 21:00. New Zealand’s central bank cut interest rates to a new low of 2.0%, in line with market forecast. The move was made to and combat low inflation. Reserve Bank Governor Graeme noted he expects inflation will settle near the middle of the target range. Although some analysts expected a bigger cut, Wheeler said that a 50 basis points move wasn’t seriously considered or justified. Governor Graeme also announced new lending restrictions for property investors to cool the housing market and enable further rate cuts in the coming months.
7. US Unemployment Claims: Thursday, 12:30. The number of Americans filing for unemployment benefits increased less than expected last week, reaching 260,000. Analysts expected an addition of 262,000 new claims. The reading suggests the employment market continues to strengthen. The four-week moving average of claims dropped 500 to 260,750 last week. Economists expect the number of claims will reach 261,000 this week.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

*All times are GMT.

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