U.S. Dollar Drops as Confidence Gains Most Since April 2003

THE TAKEAWAY: [U.S. Consumer Confidence Beats Expectations] > [Largest Gain Since April 2003] > [USDOLLAR Bearish]

Despite increasing economic headwinds that suggest the United States’ recovery may be faltering, American consumers continue to forge ahead. Typically, consumer confidence and consumer spending have strong ties: the more confidence Americans are in the economy the more liberal they behave in their spending habits. Recently, however, as consumer spending remained supported, confidence declined: either spending would fall off or confidence would rebound. It appears the latter has transpired.

An index of sentiment posted its largest gains since April 2003, according to a report issued on Tuesday by the Conference Board. The research group’s consumer confidence index surged to 56.0 in November from a revised 40.9 in October. According to a Bloomberg News survey, economists’ had forecasted the figure to come in at 44.0. In fact, based on how equity markets are performing and how the U.S. Dollar has been outperforming, one would be lead to believe the U.S. economy is on the cusp of another recession; the rebound in confidence suggests otherwise.

AUD/USD 1-minute Chart: November 29, 2011

Charts created using Strategy Trader– Prepared by Christopher Vecchio

The U.S. Dollar was weaker after the news, as were the other funding haven currencies, the Japanese Yen and the Swiss Franc, as market participants sought bids for higher yields, in the form of the commodity currency block. In the minutes leading up to the release and approximately ten after, the AUD/USD jumped by approximately 30-pips, in line with the equity markets’ collective response by spiking higher.

--- Written by Christopher Vecchio, Currency Analyst

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