SYDNEY (XFN) - The US dollar was trading firmer against the euro and yen, and is expected to be supported by solid economic data releases, despite Thursday’s expected rate hike in the euro zone, dealers said.
The dollar rallied overnight after strong US consumer confidence, durable good orders and new homes sales data indicating firm US economic activity well above that in the euro zone or Japan.
“Markets aren’t as long of US dollars as they were, and we think that at some time this week they will wish they were,” Macquarie Bank currency strategists said in a market note.
At 10:35 am Sydney (2335 GMT) the euro was weaker at $1.1767 from $1.1790 in late New York trading and the dollar was stronger at Y119.77 from Y119.50.
The Macquarie currency strategists said while the US dollar rose after the data overnight, it did not get a sustained run that it might have a few weeks ago following Monday’s selling which left many traders
licking their wounds.
The US consumer confidence survey for November jumped to 98.9 index points from a revised 85.2 in October, well above market expectations of 90.2 index points.
The said the latest survey rebounded after the hurricane and oil-affected downturn in the index over September and October, and brings the survey closer to confidence levels recorded before the hurricanes hit.
“The index is consistent with ongoing strength in consumer spending, which will continue to be supported by historically low interest rates and the robust labor market, ” Commonwealth Bank NZ economist Chris Tennent-Brown said in a market note.
Dealers said US durable goods orders for October rose 3.4% following a 2.0% fall in September, while the market consensus was for a smaller rebound of 1.5 pct%.
The volatile component of transportation orders rose 11.4% in October as Boeing aircraft orders provided a boost.
Excluding transportation orders, durable goods orders rose a modest 0.3% in October from a revised fall of 0.2% in September, previously estimated at a 1.0% fall.
“Overall the data bode well for the US manufacturing sector, in line with indicators such as the manufacturing ISM survey which is currently at a level well above the long-term average,” CBA’s Tennent Brown said.
Dealers said US new home sales for October surged 13.0% to the fifth highest recorded annual sales rate of 1.42 mln, the biggest rise since April 1993 and well above the market’s expectation of 1.22 mln in
the year to October.
“We retain the view that the Federal Reserve will hike the Federal funds rate to 4.5% by January, and that upside risk remains thereafter,” CBA’s Tennent-Brown said.
However, the Macquarie currency strategists warned, markets are entering a phase where they will be looking for recession type signs in the US, with Federal Open Market Committee members hinting rate hikes
may go too far.
“But now markets will see any sign of softness in data as hastening the FOMC’s pause, and extending said pause. In a strange way we quite like the fact that markets might begin to look at economic fundamentals again,” they said.
In the euro zone, UK mortgage approvals rose to their highest level since May 2004, while mortgage lending in the UK for October rose by 7.6 bln sterling and was above the six month average of 7.4 bln sterling.
Macquarie currency strategists said there will be increasing political comments out of the euro zone, following Thursday’s likely hike of 25 percentage basis points by the European Central Bank.
Overnight, Luxembourg Prime Minister and Finance Minister Jean-Claude Juncker warned the expected ECB rate hike on Thursday is occurring too early for the economy.
Spain’s economic minister Solbes said euro zone interest rates may only rise by a maximum 50 percentage basis points over the next year.
“It appears as long the market laps up the European tightening story and fears that the sky is falling in on a US economy that is living beyond its means, every piece of data could well be a bullet to dodge for the US dollar,” the Macquarie currency strategists said.