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Weaker than expected economic numbers impact US dollar


It was a bad day for the US dollar and US equities yesterday. The US dollar index fell around 0.77 percent and the main US indices - Dow Jones, Nasdaq and S&P 500 - fell close to 2 percent while markets continued to digest the latest Fed release. The icing on the cake was oil's 4.4 percent slide. The mood did not improve when President Trump threatened to veto the spending bill because it does not include funding for the border wall.

However, this morning, the US dollar index is rising 0.25 percent, which looks more like a relief rally. Note that the US dollar hasn’t suffered that significantly in the past when the US government was shut down.

On the release side, the gross domestic product annualized (in the third quarter) came in at 3.4 percent, lower than the expected 3.5 percent. The US durable good orders for November came in at 0.8 percent versus the 1.6 percent expectation. In addition to that, the revised data released showed consumer spending rose at a slightly slower rate last quarter and exports declined more sharply — no good news overall for the US dollar, but financial market prices are moving ahead of economic data and fundamentals as usual.

The Loonie is fell to 19-month lows against the Greenback, pushed by oil prices following a rough patch. The crude WTI is trading at the US$ 45.00 handle, a new 17-month low.

On the release side, the gross domestic product (year to year) came in at 2.2 percent as expected but the gross domestic product (month to month) came in at 0.3 percent, better than the expected 0.2 percent. However, GDP numbers usually are coincident indicators, which means that market participants focused more on leading indicators such as oil prices and retail sales. This morning, retail sales for October came in at 0.3 percent when the forecast was 0.5 percent and the retail sales ex-auto for October came in at 0 percent when the read was 0.2 percent. Those stagnant retail numbers along with oil prices are pushing the Loonie rate to new lows.

The USD/CAD is trading at 1.3542, after touching an intraday high of 1.3564 (intraday low of CAD/USD was 0.7372).

The Euro continued its strong week as Italian budget headwinds reduced alongside the weakness seen against the US dollar. The EUR/USD had rallied 1.75 percent this week towards a 44-day high of 1.1486. However, this morning’s French consumer spending numbers threw a bit of a surprise with Black Friday failing to lift numbers despite an expected boost from October's tax cut.. French GDP figures could well set the tone for the rest of the Eurozone and the strong performance at the start of the year could be dampened by H2 mainly due to the disruption that was seen in Paris recently. The risk for the Euro at the beginning of next year could come in the form of weak GDP numbers.

As the year wraps up, there are no surprises from the Bank of England as they decided not to change the precedent of altering rates at the end of the year. The vote was unanimous across the bank to keep rates at 0.75 percent while the forecasts had a slightly dovish tilt as they were revised down for growth and inflation. Unsurprisingly as well the bank warned that the greatest threat to growth at the moment comes from Brexit uncertainty. The other news beyond the carnage at Gatwick airport was that Parliament has confirmed that the debate on Brexit will begin on January 9.

The Australian dollar managed to hold some ground against the US dollar overnight even though US-China trade progress took a back seat given the other events unfolding in Washington. That’s it for the Aussie dollar for now and, much like the rest of the currencies, there isn’t much more to watch out for on the economic calendar before the end of the year. The AUD/USD pair is trading at the 0.7100 handle this morning, 0.11 percent lower. The global flight to safety underpins the US dollar demand.

New Zealand consumer confidence picked up at the end of the year, turning in its most robust results since March 2018. While the release failed to set the New Zealand dollar a light (difficult given that many investors have clocked off for the year), it did provide a fresh update for the New Zealand economy with growth forecast around 2.5 percent. The NZD/USD pair trades at 0.6739, falling 0.52 percent at the time of this writing.