Demands for U.S. Durable Goods Fall Short of Expectations

The breakdown of the report showed new orders increased 0.3% from November after being adjusted for seasonality, with shipments surging 2.9% after rising 0.8% in the previous month, and conditions are likely to improve going forward as the expansion in monetary and fiscal policy continues to feed through the real economy. Demands for defense aircraft and parts surged 14.7% during the month to lead the advance, which was following by a 6.0% rise in machinery, while orders for non-defense aircrafts tumbled 38.2% after contracting 40.0% in the previous month. The data reinforces an improved outlook for private-sector spending as business raise their willingness to purchase big-ticket items, and the rebound in domestic demands should help to boost the outlook for future growth as the world’s largest economy emerges from the worst recession since the Great Depression.

Nevertheless, the advanced 4Q GDP report due out tomorrow at 13:30 GMT is expected to show the growth rate expanding at an annual pace of 4.6% after rising 2.2% during the three-months through September, while personal consumption if forecasted to increase 1.8%. As a result, the greenback could face increased volatility over the next 24 hours of trading as investors weigh the prospects for a sustainable recovery.

Meanwhile, there appeared to be a slight pull back in risk appetite following the lower-than-expected headline reading, which led the USD/JPY to retrace the overnight advance and fall back to 89.94. As risk trends continue to dictate price action in the currency market, a drop in risk should benefit lower yielding currencies such as the Japanese Yen and the U.S. dollar as investors mull over the outlook for global growth.