NEWS / Foreign Exchange

Today's U.S. indicators include a couple of big numbers

Yesterday, OPEC announced a decision to keep its quota production levels unchanged. While production levels are likely to creep up if oil demand remains strong, and prices are likely to vascillate within the $55-$65 dollar range, there were some important OPEC statements made with currency implications. In the opening communique, OPEC mentioned their strong concern about weakness of the dollar against the euro and sterling. The fact that they put dollar-depreciation front-and-center in their opening statement inferred that they are contemplating ways to stem their errosion of purchasing power if the dollar were to weaken further.

During the Q&A session of the meeting in Vienna, I tried to pin OPEC down on this issue and derive how they may be prepared to respond to anticipated on-trend dollar depreciation. To watch me put this question to OPEC's leadership, you can see the OPEC conference broadcast posted at this link (my question is around the 15 minute mark):

Although OPEC is monitoring the dollar depreciation situation with displeasure, they are unlikely to make drastic changes in the near-term. In the longer-run, however, if the dollar continues to weaken, they are likely to explore other currency options. Stay tuned.

Today's U.S. indicators include a couple of big numbers. The U.S. Consumer Price Index for February will be released at 8:30, and is expected to have risen. We expect headline CPI to rise 0.2 percent and core CPI to be up 0.1 percent. These figures are a shade lower than consensus estimates. A stronger number could signal to the market the greater probability of a rate hike and cause the dollar to strengthen, whereas a softer sign of inflationary pressure would give less credence to the probability of a hike, and in the current slower growth environment could cause the market to asymmetrically price in a cut - and make the dollar weaken.

At 9:15am, U.S. industrial production will hit the wires. We expect a flat reading for February. The manufacturing sector hs been under significant pressure in recent months, and we believe that the February industrial production report is likely to continue to show this.