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US Dollar Vulnerable to Slowing Durable Goods Orders, 2Q GDP Revision

US Dollar Vulnerable to Slowing Durable Goods Orders, 2Q GDP Revision

2019-08-24 10:00:00
David Song, Currency Strategist
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US Dollar 2 Hour Price Chart

US Dollar Rate Talking Points

The economic docket for the final week of August may produce headwinds for the Dollar as data prints coming out of the US are anticipated to show a slowing economy.

Fundamental Forecast for US Dollar: Neutral

The US Durable Goods Orders report is expected to show demand for large-ticket items increasing 1.3% in July after expanding 1.9% the month prior, while Non-Defense Capital Goods Orders excluding Aircrafts, a proxy for business investment, is projected to climb 0.1% compared to the 1.5% rise in June.

In addition, updates to the US Gross Domestic Product (GDP) report is anticipated to show a downward revision in the growth rate, with the economy to post a 2.0% expansion versus an initial forecast for 2.1% print.

Signs of a slower growth may sway the near-term outlook for the US Dollar as it puts pressure on the Federal Reserve to implement a rate easing cycle, but there appears to be a growing dissent in the Federal Open Market Committee (FOMC) as the economy shows little signs of a looming recession.

Atlanta FED GDPNow Forecast Chart

In fact, the Atlanta Fed’s GDPNow model forecasts the US economy to expand 2.2% in the third quarter of 2019, and recent remarks from Kansas City Fed President Esther George, a 2019-voting member on the FOMC, suggest the central bank is in no rush to implement a rate easing cycle as the policymaker insist that “we’re in a good place as long as the consumer can continue to pull the economy forward.

FED Target Rate Chart

As a result, the FOMC may attempt to buy more time after delivering a rate cut in July, but Fed Fund futures continue to show overwhelming expectations for another 25bp reduction on September 18 as the ongoing shift in US trade policy clouds the economic outlook.

In turn, a batch of dismal US data prints may produce headwinds for the Dollar should the developments put increased pressure on the FOMC to reverse the four rate hikes from 2018.

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

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