US Dollar Looks to Durables, PCE Data for a Lifeline

Talking Points:

US Dollar May Rise if Upbeat Durables, PCE Data Forces Fed Rate PathRe-Pricing
New Zealand Dollar Gains as Narrowing Trade Gap Cools RBNZ Rate Cut Speculation
Euro, Swiss Franc Suffer as Risk-On Sentiment Weighs on Funding Currencies in Asia

Another relatively quiet day on the European economic data front will keep investors looking at the US docket for potential directional catalysts. November’s Durable Goods Orders figures as well as the PCE measure of inflation – the Fed’s favored price growth gauge – are due to cross the wires. The former is expected to show a 0.7 contraction, marking a slight pullback, while the latter is seen keeping the core year-on-year growth rate unchanged at 1.3 percent.

Traders will look to the outcomes to inform speculation about the likely trajectory ofFOMC interest rate hikes in 2016. The markets’ priced-in outlook envisions two rate increases in the year ahead, whereas Fed Chair Janet Yellen and company expect to issue four (according to forecasts presented at the December meeting). On balance, this may make price action more sensitive to upside surprises versus the alternative. Such results may force re-pricing to bring consensus views closer toward the Fed’s, boosting the US Dollar.

The New Zealand Dollar outperformed in otherwise muted overnight session after November’s Trade Balance figures showed the deficit unexpectedly narrowed to –NZ$3678 million, marking the smallest shortfall since April 2009. New Zealand’s front-end bond yields moved higher after the data crossed the wires, suggesting the supportive print weighed against RBNZ rate cut speculation. The Euro and the Swiss Franc tracked lower, trading inversely of Asian stock exchanges to hint that “risk-on” sentiment bolstered carry trades while punishing funding currencies.

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