USD Advances on Weak Personal Income and Spending

THE TAKEAWAY: U.S. Personal Income Shrinks > Economic SlowdownFuels Risk Aversion > USDollar Advances

The U.S. Dollar’s status as safe haven has consolidated after a report today issued by the Commerce Department showed that personal income and spending for August both pointed to sluggish U.S recovery. The gauge for spending inched up only about 0.2 percent for the month after a hefty 0.8 percent surge in July, while income data surprisingly declined by 0.1 percent. The median forecast of economists surveyed by the Bloomberg News was for 0.1 percent growth, following a 0.3 percent increase in July.

Along with a distressing mix of readings and news, the reserve currency got a lift amid heightened concerns about the global economic outlook. Before the release, German lawmakers’ approval of expanding the firepower of the European Financial Stability Facility helped ease the ongoing turmoil in market, but analysts have questioned its capability to prevent debt problem from spreading to Spain and Italy. In addition, German retail sales slumped 2.9 percent in August and China purchasing mangers’ index shrank for a third month. The dampened outlook for a sustainable recovery has spurred a lot of downside pressure on riskier assets, with investors positioning themselves for risk-off trade. As a result, USD has climbed against all but JPY among its 16 most traded counterparts this quarter.

USD/CAD 1-minute Chart: September 30, 2011

Charts created using Strategy Trader– Prepared by James Hao

Risk aversion rallied after the report released. U.S Dollar continues to recoup the earlier decline today as it benefits safe-haven inflows. At the time this report was written, the USD/CAD pair has climbed by 50-pips, reaching C$1.4630. As fundamental data points to a weak trajectory for economic growth, the demand for the green back may continue to pick up.

Written by James Hao, DailyFX Research Team