Forex: Market Activity Set for Pickup on Heavy Event Risk Next Week

A busy economic calendar is likely to fuel a pickup in financial market action next week after markets emerge from the Easter holiday lull in activity.

Talking Points:

• NZ Dollar Corrects Higher in Otherwise Quiet Overnight Trading Session    

• Thin Liquidity May Amplify Volatility on Any Unforeseen Headline Risk    

• Market Activity Set for a Swift Pickup on Busy Event Calendar Next Week

The New Zealand Dollar outperformed in otherwise quiet Asian trade, rising as much as 0.2 percent on average against its leading counterparts. The move did not appear to reflect the influence of a particular single catalyst. Rather, the advance likely amounted to a correction after the Kiwi trailed its major currency counterparts against the US Dollar in yesterday’s session, losing a hefty 0.6 percent and slipping below chart support.

Looking ahead, most major financial markets will remain closed for the Good Friday holiday. In fact, key exchanges in Europe as well as Hong Kong and Australia will stay shuttered through Monday. That suggests that lackluster participation may make for a quiet end to the trading week. Ebbing pre-holiday liquidity may amplify any unforeseen headline-driven volatility however, warning those traders still holding open exposure to tread cautiously in the near term.

The coming week will bring ample top-tier event risk to reignite activity. The Reserve Bank of New Zealand (RBNZ) rate decision is on tap, with traders pricing in a 97 percent probability of another 25 basis point interest rate hike. Australian CPI data is expected to put headline year-on-year inflation rate at the highest in over two years, which may boost the RBA policy outlook and drive the Aussie upward. April’s preliminary set of Eurozone PMIs are forecast to show a further slowdown in manufacturing- and service-sector activity growth, which may further stoke speculation about a forthcoming expansion of ECB stimulus.

Finally, a busy docket of US activity data will help inform bets on the continuity of the Fed’s effort to “taper” QE asset purchases. Home Sales, Durable Goods Orders and Consumer Confidence figures are in the spotlight. Economic data outcomes from the world’s largest economy showed a notable improvement relative to expectations over the past two weeks (according to data compiled by Citigroup). If that trend continues, ebbing doubt about the continued withdrawal of Fed stimulus may offer yield-based support for the US Dollar.

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