The weekly calendar is dominated by US data with many looking ahead to the retail sales and inflationary report for the world’s largest economy.  Serving as key data points, the reports should support further directional bias for the week with the tipping point arriving in the form of the Federal Reserve meeting minutes report on Wednesday.  In addition, with earnings season upon us, traders will likely be mindful of any downticks in the upcoming economic data that will spur speculative doubt of an global economic recovery.

US Inflationary and Retail Sales Report

Consumer prices in the US economy are likely to remain muted, helping the Federal Reserve in keeping to the currently low interest rate of 0.25 percent. As long as prices continue to remain steady, 0.1 percent in the last month over month comparison, sentiment will continue to side with monetary policy that is set to be accommodative through till year end.   This simply means that it remains less likely that policymakers will vote for an interest rate hike till 2010. On the other hand, traders will be looking for a positive up tick in consumer spending through the US retail sales report on Tuesday morning. Although hopes are high for another positive rise in sales for the month of June, speculation is showing some pessimism of a sub par posting. Support for the theory comes from the recently released monthly retail industry report that showed a double digit decline in year over year sales figures.

US Federal Reserve Meeting Minutes

With the decision already being released, traders and analysts will be looking at the meeting minutes report to find further clues and insight into potential future decisions that will be taken by policymakers. Although it is quite clear that rates will stay low for some time, the thin possibility of a mention on inflation could spark the curiosity of the most dovish of interest rate speculators. As a result, eyes will be targeting anything that could stray from what central bankers have noted in the past – particularly low interest rates, long period of time.  The sentiment has been reflected in the short term fixed income markets as the front end of the curve has rallied over the last 48 hours.

Bank of Canada Consumer Price Index

Although not as popular a trade as the US counterpart, the Canadian CPI report for the month could spark some noteworthy action as production has shown signs of life in recent months. Residential construction, for the third straight month, advanced even as employment prospects continued to dim.  According to the most recent Statistics Canada report, unemployment in the economy rose by 0.4 percent to 8.4 percent, the highest in 11 years. As a result, the recent spate of economic activity could spur some inflationary pressures, turning the currently overwhelming dovish sentiment. However, market participants are likely not ready to jump into a hawkish mindset yet. The fact that the CAD has appreciated by an impressive 11.4 percent since the beginning of year can do a lot to quell nascent inflationary pressures and make central bankers rethink raising interest rates any time soon.

Will construction push central bankers to raise?

Tags: Canadian CPI, CPI, Federal Meeting Minutes, US Dollar, US Economic Data, US Retail Sales

This entry was posted on Tuesday, July 14th, 2009 at 4:10 am and is filed under Canadian Dollar, Economic Indicators, Euro, US Dollar. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.