It was a rather calm week for the US dollar with no big events to shake the currency. The market’s risk sentiment has improved a bit on the back of slightly more positive figures from China and the euro area. As long as the risk aversion doesn’t spike again, American currency will have better chances against lower yielding currencies like JPY and CHF.
The most important event of the next week will be the FOMC meeting on Wednesday. We expect the Fed to end QE3 as it has planned. Note, though, the recent data from the US were mixed. In addition, ending stimulus is a painful thing. So, the central bank may sound cautious about the future policy in general and interest rate increases in particular.
We’ll get more hints about the dollar’s future as the US will release Q3 GDP for the first time on Thursday: American economy is expected to have added 3.1% in 3 month from July to September. That’s down from 4.6% in Q2, but still is a solid growth. If a reading is in line with expectations or better than the forecast, concerns that the US economy is affected by global slowdown will ease. US 10-year yields are slowly rising and this is good for USD, but to enter a long term USD-bullish positions, we need to see a bigger move up in American yields.
Another central bank to meet on Oct. 29 is the Reserve Bank of New Zealand. In the past week NZD fell on lower domestic figures. This could give the RBNZ room to further delay its next interest rate hike. Technically NZD/USD has Sep. lows just above $0.7700 to slide to. AUD/USD looks more stable as it keeps fluctuating around $0.8750. This pair will be driven mostly by the US news in the coming week.
Elizaveta Belugina, FBS