Final week for key macro events before 2018

As trading winds down ahead of Christmas and New Year, volatility in the financial markets are likely to dwindle over the coming week and a half. But there are a number of currencies which may experience increased levels of volatility from time to time this week as traders respond to key macro events, while the ongoing optimism over the US tax reform bill could keep the stock markets in focus heading into year-end. For now investor sentiment remains buoyant, as they helped push the Nasdaq Composite index above 7000 for the first time ever yesterday. Other major US indices all hit new record levels, too. But today US index futures point to a flat open, mirroring price action in Europe. The vote on the combined bill in the House is likely to take place later on today while the Senate vote could be on Wednesday. If the bill is approved this will give Donald Trump his first legislative victory since taking office. But stocks may then dip amid profit-taking as this outcome is surely priced in by now. Nonetheless the lack of any significantly bearish catalysts could see the overall uptrend remain firmly intact.

BoJ likely to hold policy unchanged

In addition to the US tax reform bill, there will be some important global economic data to look forward to this week, which should help keep some FX traders busy in an otherwise quiet week. Data from Canada and New Zealand will be the most important this week, while there is still one central bank yet to make its final decision on monetary policy before the year is out: the Bank of Japan. The Japanese central bank is meeting on Thursday and is widely expected to keep its monetary policy unchanged. The yen could weaken in the event the BoJ delivers a more dovish policy statement than expected. With the final US GDP estimate also scheduled for release on Thursday, the USD/JPY could make some progress after being stuck in a very tight range over the past several weeks.

Key New Zealand data eyed

But as mentioned, this week’s key data release is from New Zealand and Canada. In fact, things have already kicked off with the release of mixed-bag confidence barometers from New Zealand.  The Westpac Consumer Sentiment index eased further to 107.4 in the fourth quarter versus 112.4 in the previous. However, the ANZ Business Confidence index has improved to -37.8 this month from -39.3 in November. More importantly, the bi-weekly GDT Price Index will be published later on today. This captures the average price of dairy products sold at the Fonterra auction. With New Zealand’s economy reliant on dairy exports, any noticeable rise in prices of milk and other dairy products should be good news for the New Zealand dollar. Later on this evening we will have the latest government data on current account, trade balance and visitor arrivals into NZ, as well as the latest figures on credit card spending. But it is Wednesday night or early Thursday morning NZ time when the main event is scheduled for release from New Zealand: the third quarter GDP. The economy is expected to have expended by a good 0.6% quarter-over-quarter after growing 0.8% in Q2. The NZ GDP has grown at a faster-than-expected pace for each of the past three quarters, I should add.

Canadian CPI and retail sales later in the week

Meanwhile from Canada, the key data is core CPI and retail sales, both due for publication on Thursday, ahead of the monthly GDP estimate on Friday. Core CPI is expected to have risen 0.2% month-over-month after climbing by 0.1% the month before. Core retail sales are seen rising 0.4% m/m versus 0.3% previously.