US Dollar Looking for Fed Policy Clues in Durable Goods Report

The US Dollar may extend its recovery if March Durable Goods Orders data tops expectations, arguing for continued “tapering” of Fed QE stimulus efforts.

Talking Points:

NZ Dollar Higher on RBNZ Rate Hike But Gains May Prove Fleeting
Upside Surprise on German IFO Survey Data May Not Help the Euro
US Dollar Looks to Extend Recovery, Eyeing Durable Goods Report

The New Zealand Dollar outperformed in otherwise quiet overnight trade after the Reserve Bank of New Zealand (RBNZ) raised its benchmark interest rate to 3 percent, the highest since January 2011. Follow-through may be limited however. The monetary policy statement seemed to suggest that the level of the exchange rate will be considered in setting future policy, which presumably suggests that appreciation will undermine the case for further tightening. That may undermine traders’ interest in the Kiwi, capping upside potential.

Germany’s IFO Survey of business confidence headlines the economic calendar in European hours. The headline Business Climate index is expected to tick lower to 110.4 in April, marking the second consecutive decline and the lowest level in four months. An upside surprise may be in the cards as persistent disinflation feeds ECB interest rate cut speculation. Indeed, a measure of the priced-in 12 month policy outlook has notably trended lower since the beginning of the month. A pickup in sentiment driven by hopes for monetary easing hardly bodes well for the Euro however.

Later in the day, the spotlight turns to the US Durable Goods Orders report. A 2 percent increase is expected in March, an outcome that would mark a slight slowing compared with the 2.2 percent gain recorded in February. Economic data outcomes from the world’s largest economy notably improved relative to forecasts in the past two weeks however (according to data from Citigroup). If that trend continues, ebbing doubt about the continued withdrawal of Fed stimulus may offer yield-based support for the US Dollar.

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