Will China raise rates? Will US data guide QE talks? – Next week’s forex questions

The dust of G-20 has settled. World leaders sat around a large table set this time in South Korea, searched for that magic wand in their suit pockets, and then looked at each other's face with disappointment. They didn't get one to 'calm down' the emerging fears of a 'world war' on trade and currencies. They did not 'direct' China and/or US as some hoped.

But even after all news from the Seoul extravaganza has digested, people have not moved from the region. In fact, they just walked from Asia's fourth largest economy to its neighbor as a slew of hawkish news from the world's second largest economy has stolen the show on the international business stage this weekend.

There is also an extensive economic calendar for the third week of November which has sufficient potential to shift the focus from a heating China to an eventful Europe and from there to an 'informed' US.

On back foot, quickly

When data earlier this month showed Chinese industrial output surged, people started buying the Australian dollar and pushed it up above the greenback. An RBA (Reserve Bank of Australia) surprise rate hike served fuel into the fire and a good job number from New Zealand attracted investors to the kiwi dollar too. Gold and copper (Comex) followed or guided the show and discovered new summits while silver romanced with its 30-year highs. Oil also joined the party and the December contract flowed upwards to a 2-year high.

Gone those days in about a week! China said prices are rising at a pace faster than everybody expected and everyone is now busy picking up risky metals and fluids off their bag and running to the dumping yards. What are they keeping? As usual, they are following the 'conventional wisdom' and trusting the papers printed by the United States of America. Let us see, how far it will go.

More Chinese concerns for next week

It is not done with the worries over inflation; China has already asked banks in the country to keep more funds aside, cutting their lendable resources. Also, as per a report by 'Securities Times', a Chinese daily, authorities will soon start demanding proof from first-time real estate buyers from outside the nation that they would not need more properties elsewhere in its territory.

Both this measures are just preparing the ground for the ultimate step, experts say. A Bloomberg report on Friday said analysts polled by the agency are expecting another round of policy rate hike by China, 'within weeks'. The Asian giant had raised the key rate in October, which was for the first time since 2007 September.

There are also data like money supply (M2) and foreign direct investment data for the month of October to be expected from China in the week to November 19.

Data elsewhere in Asia and major currency pairs

More than Japan's third quarter GDP and September industrial output data, Bank of Japan's monetary policy, which could give cues about its near-term FX (intervention) policy and is likely to impact the yen in the third week of November. The yen had rallied for the second straight week and ended at 82.48 per dollar on Friday, close to the 1-month low of 82.78 it touched on Wednesday. The Japanese unit is now off a 15-year high it hit last week by more than 2.7 percent.

If Chinese concerns keep the greenback broadly strong, yen may fall to fresh lows and then the BoJ can relax - at least until worries over a third round of Fed easing take centre-stage.

New Zealand's September retail sales figures due on Monday and Wednesday's RBA minutes will also be crucial with the first one giving an idea if the market had rightly priced in the hawkish caliber of an employment data that had pushed the kiwi-currency to fresh highs earlier in the month, and whether the correction thereafter was reasonable. At Friday's close of 0.7742, the New Zealand dollar was down by 2.9 percent from the multi-year high it hit on November 4 and 2.7 percent in this week.

The Aussie dollar that continued dancing with the Chinese music rose to a 28-year high of 1.0181 against its US counterpart on November 5 but has dropped by around 3.17 percent from there to close Friday at 0.9858, a near 1-week low for the commodity currency. October new vehicle sales and November Westpac leading index during the week could be of some importance, but otherwise the Asia Pacific currency will mainly thrive on data from China and broader greenback performance.

Euro area worries and data for the London session

There is a wide array of economic data due in the week to November 19 from the three major currencies of the region. While the British currency is expected to take cues from consumer price index (CPI), retail sales and employment data - all for October, the single currency may be influenced by September trade balance and construction output and October CPI from the EU and German producer price data for October.

At Friday's close of 1.6137, the pound was nearly 1 percent down from its 9-month high of 1.6297 touched on November 4.

On a volatile Friday, the euro closed higher against the greenback but the common currency ended the week down across the board as concerns about EMU's so-called peripheral debt issues weighed. Amid disappointing data that kept coming from Greece, Spain and Portugal, growing fears that Ireland may default on its Sovereign bonds and talks of a rescue package for it by the EU were the push-pulls in euro trading last week. Any fresh cues over the fiscal strength of these 'peripherals' will continue to play bigger roles in the coming week too.

The euro ended at 1.3691 against the dollar on Friday, up from previous its close of 1.3665, but 2.46 percent down on the week. The single currency was down 4.1 percent from the 9-month high of 1.4280 it hit on November 4.

The Swiss franc that fell all the days in the week against the US dollar closed Friday at 0.9807, down nearly 2 percent from previous Friday. Trade balance and producer price index for October and November ZEW survey report may impact the franc next week.

Key US data may guide QE talks

How far investors will let commodities correct and buy dollars will all depend on fresh signals from the Euro zone and Chinese moves but one will be more interested to see how the set of US data scheduled for the week to November 19 will turn around. Positive surprises could defer talks about a third round of easing but otherwise, we may see the weekend equation in the Forex market changes drastically.

Consumer and producer price inflation, retail sales, housing starts - all for October, November industrial production and weekly data on employment environment are the key US data due. September wholesale sales and details of foreign investment in securities and October leading indicators will run the show from neighbor Canada, whose currency is also heavily vulnerable to the commodity prices.

The greenback that pulled off multi-month lows versus euro, pound and the Canadian dollar stood stronger across the board in the week to November 12. Against the Canadian dollar, the US currency had intra-day lows below parity on five straight days to Thursday and at the week's close of 1.0096, the greenback was up nearly 0.9 percent on the week and was 1.2 percent stronger than its 6-1/2-month low of 0.9976 touched on Thursday.