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US Consumer Confidence Falls |
Greenback Still on Back Foot
Stocks in the US put the brakes on their torrid run over the past few
sessions yesterday as the conference board released consumer confidence
figures for the month that fell more than expectations. As earnings season
continues and many corporations release positive results and favourable
outlooks for the future, the same clearly cannot be said about the
American consumer. US durable goods orders, a major indicator of consumer
confidence, came in much lower than expected today, printing a decline of
0.6% versus expectations of a rise of 0.6%. Spending in the US is like a
national pastime, and as a result consumers account for around 70% of GDP.
So why is the feeling on Main Street so much more pessimistic than it is
on Wall Street?
There is more than one reason for this
divergence in attitude, but the fact that interest rates remain at
extremely low levels certainly has a positive effect on the bottom line of
large companies, while households continue to struggle with already high
debt loads and an increasing saving rate. Credit is still difficult to get
for many individuals, as the banking system has learned a few painful
lessons over the past few years and is reluctant to simply throw money at
whoever walks through their doors. Employment is another factor here, as
labour market conditions in the US remain very soft with companies
reluctant to start hiring in favour of running lean in an effort to get
profits back on track. With all the good news from the stock market lately
the USD has been getting punished as investors hunt for returns in
higher-yielding assets classes. A lot of the move can be attributed to the
resurgence of the EUR and the GBP, two currencies that have been under
pressure for some time now. With the debt problems in Europe seemingly
taking a back seat for the moment, traders have been covering off their
short positions in the EUR and now seem intent on focusing on the USD. The
EUR has been having a tough time making significant gains above the 1.30
level and is meeting big selling pressure just above this figure as the
outlook for the common currency and the region in general is still
cautious at best.
Sterling Hits Five-Month High
The pound sterling hit a five-month high overnight above 1.56 against the
USD as positive market sentiment carried over from the US and Asia. This
optimism was tempered somewhat by statements made by Bank of England
Governor Mervyn King overnight that were more dovish than expected. The
BoE governor stated that their current focus was on providing stimulus for
the economy and that the current level of money growth is not a threat to
inflation. The pound has seen a big reversal of fortunes of late as the
outlook for the UK economy is cautiously optimistic—albeit that the
emphasis is on “cautious.” If the pound can continue its upward trend and
close above the 1.56 level it could be in for further gains if market
sentiment remains positive.
Commodity Currencies Struggle
The Aussie, Kiwi and Canadian dollars all struggled overnight as traders
chose to take profits on the recent resurgence in risk appetite. The AUD
was the biggest loser of all, falling nearly a cent as quarterly inflation
data came in under expectations and the currency fell below the key 90
cent mark against the USD. Kiwi business confidence numbers were also
released last night, falling below expectations and halting the run of the
currency below its recent six-month highs. The RBNZ make their interest
rate decision later this evening, and if the market gets the hike they are
looking for, it could mean more gains for the Kiwi. Canada has been
somewhat directionless over the past few days, as little in the way of
Canadian data was released, so the Loonie is more than happy to follow
equity markets. The CAD did give back some of the gains achieved yesterday
and failed to sustain any moves below the 1.03 level, which appears to be
providing good support today. With little more in the way of major
economic data releases today, most currencies will follow the developments
in equity markets. US unemployment claims are released tomorrow and will
be watched closely for clues as to the health of the American labour
market. As mentioned, it is still under siege and an increase in claims
will certainly dampen investor’s expectations.
Have a great day.
Brendan McGrath, Senior FX Trader
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