Australian TD Securities Inflation (JAN) (23:30 GMT; 18:30 EST)
Consensus: N/A
Previous: 0.3%

Outlook: Though there is no market consensus for it, TD Securities’ monthly measure of Australian inflation is expected to have eased in January. Unfortunately, there are very few related indicators for the same period available to offer a reliable projection for price pressures last month. One shift that will certainly have a hand in inflation is the drop in energy prices. At the beginning of the production line, crude oil prices dropped sharply through the first half of January. This, in turn, will pass through to the consumer in the form of cheaper heating oil and gasoline prices. Elsewhere, a few reports from December had likely encouraged Australian companies to lower the price on their goods and services in the following month to drum up business. The NAB Business Conditions indicator, projection activity for the first quarter, slipped 2 points to a reading of 4. Alternatively, there are reasons to believe positive pressures will keep prices from actually sinking. In December, employers took on 44,600 workers to push the unemployment rate to a 30-year low. This likely facilitated confidence and spending. With the RBA’s rate decision due only a day later, the inflation gauge could play a role in stoking speculation and even tipping a vote from the policy body.

Previous: An index of price growth in the Australian consumer basket accelerated to its fastest pace in four months in December. At a 0.3 percent pace of expansion, the indicator has confirmed a rebound off of the lows reached in the beginning of the month. Consequently, this monthly read helps offset the government’s own quarterly numbers, which reported a 0.1 percent contraction in prices through the final three months of the year. However, despite the sharp drop in energy prices through the period, the annual read on the CPI number held at 3.3 percent, still outside of the RBA’s 2 to 3 percent comfort zone. With TD’s monthly figure showing an improvement through the three months with its more granular time frame, expectations of a follow through rebound may keep the central bank leaning towards a rate hike going into the new year.

Australian Retail Sales (DEC) (00:30GMT; 19:30EST)
Consensus: 0.5%
Previous: 0.2%

Outlook: Retail sales in Australia are anticipated to have risen 0.5 percent in December as a tight labor market gives consumers the confidence to loosen the purse strings and spend. The Australian economy added more than 300,000 jobs in 2006 – the largest annual gain since 1989 – helping the unemployment rate to drop to the lowest level in more than 30 years at 4.6 percent. However, the tightening of the labor market is anticipated to slow in January, with the employment change for the month estimated to rise a mild 2,500 after surging 44,600 the month prior. Furthermore, the Reserve Bank of Australia worked aggressively to slow spending in 2006 with rate hikes in May, June, and November, as the growth helped stoke inflation above the central bank’s 2 percent to 3 percent target band. The impact of higher interest rates will continue to be felt throughout the economy and should lead to a gradual decline in consumption.

Previous: Australian retail sales growth slowed in November as three interest rate hikes by the Reserve Bank of Australia throughout 2006 cooled consumer spending habits. Sales in the retail sector rose a mild 0.2 percent – the lowest level in six months – after surging 0.9 percent higher during the month prior. The drop in consumption growth may put the brakes on an economic expansion now entering its 16th year and reduce speculation of monetary policy tightening during 2007, especially as consumer spending contributed 0.4 percentage points to GDP in both the second and third quarters of 2006, down from 0.6 percentage points in the first quarter.

US Non-Manufacturing (JAN) (15:00 GMT; 10:00 EST)
Consensus: 57.0
Previous: 57.1

Outlook: ISM Services looks to stay broadly unchanged, as the domestic non-manufacturing sectors look to outperform its industrial counterparts. Though the headline ISM print will likely remain a full point below November’s 7-month high, the outlook remains bullish for services on strong consumer demand. Bolstering otherwise strong spending, signs of a stabilizing domestic real estate market may encourage workers to open their pocket books on hopes of strong home resale values. This arguably leaves risks to the upside for the coming numbers, but a slight jump in the unemployment rate may offset such a benefit. It will be important to see the figure continue to impress, with the US economy likely to suffer if the Services sector does not outweigh Manufacturing weakness.

Previous: ISM Non-Manufacturing eased off of previous 6-month highs, as a worsening housing market dampened growth in the broader US economy. Looking at the specifics of the report, the clear highlight was a jump in the employment index, which increased from 51.6 to 53.3—improving outlook for the ever-important consumer spending-linked sectors. Businesses were likely pleased to see that the Prices Paid figure likewise moved higher, taking it to 59.1 from a previous 55.6. The drop in the headline ISM figure perhaps obscured the fact that the report was largely bullish for future growth—leaving risks to the upside for subsequent reports.

Canadian Ivey Purchasing Mangers Index (JAN) (15:00 GMT; 10:00 EST)
Consensus: 52.0
Previous: 49.4

Outlook: The Canadian manufacturing sector is expected to have rebounded from its first contraction in a year in January as the lost momentum in energy production is offset by domestic demand. In the opening weeks of the year, crude oil prices resumed the steady decline begun a few months before. The silver lining though is that the trough in prices near $51 per barrel towards the middle of the month will help reduce costs for local producers. Alternatively, the rebound in the last half of the month may still be boon for managers’ forecasts. At the same time, activity may pick up on consumer demand. With the savings in heating and gasoline prices meeting the lowest level in unemployment in three decades, Canadian spending habits likely loosened. For an advanced look, the quarterly Business Conditions survey may set the benchmark. While those expecting production to slow outpaced slightly outpaced the optimists, the new orders spread moved in favor of an increase. Factory activity has long been one of the most sensitive sectors for the Canadian economy due to its response to the domestic and foreign demand. Should the Ivey report rebound, the currency may rebound as traders believe the economy is able to weather the high exchange rates.

Previous: The Ivey Purchasing Mangers Index contracted in December for the first time in a year. A reading below 50.0 indicates the number of survey respondents reporting a drop in activity outpaced those monitoring a pickup. However, printing at 49.4, the indicator’s drop was not wholly unexpected. Looking back over the history of the report, a drop is usually found at the end of the year. Looking to the breakdown in the indicator, the components suggested the drop in the headline would not be long lasting. Supplier deliveries for the month picked up slightly, though they were still near their lows. Furthermore, inventories printed net contractions for the second month in a row, suggesting activity would pick up in the months ahead to keep up with demand. Perhaps the most promising read was the strong investment in employment.

John Kicklighter is a Currency Strategist at FXCM.