Talking Points

US Dollar Gains, Aussie and Kiwi Sink Amid Renewed Fed “Taper” Speculation
Retail Sales, UofM Confidence Figures in Focus as Markets Build Out FOMC Bets
Lasting USD Rally Unlikely Absent Major Upside Surprises on the Data Front

The US Dollar advanced against the major currencies while stocks declined on Asian bourses as the markets’ attention turned to next week’s FOMC policy announcement. The Australian and New Zealand Dollars bore the brunt of the greenback’s recovery, sliding as much as 0.5 and 0.6 percent respectively.

The baseline scenario calls for a $10-15 billion cutback in asset purchases but the path thereafter remains uncertain. That means the updated set of economic forecasts from the rate-setting committee as well as Chairman Ben Bernanke’s press conference following the policy decision are likely to offer traders plenty of fodder for speculation.

For the time being however, the spotlight is on Augusts’ Retail Sales figure and Septembers’ preliminary University of Michigan Consumer Confidence gauge due before the end of the trading week. The former is expected to show receipts rose 0.5 percent from the prior month, an outcome broadly in line with the trend average (0.4 percent). The latter is seen ticking lower for a second consecutive month, albeit modestly so.

On balance, outcomes in line with consensus forecasts are unlikely to materially alter status-quo FOMC expectations, suggesting the Dollar may find it difficult to build significant upward follow-through into the weekend. Needless to say, news-flow that tops economists’ forecasts and thereby argues in favor of a sustained QE reduction cycle into the end of the year is likely to broadly boost the greenback, and vice versa.

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