USD Falls after March ISM Manufacturing Accelerated More than Expected

2012-04-02 14:35:00

Trang Nguyen

THE TAKEAWAY: U.S. ISM Manufacturing Index Accelerated in March > Business Conditions are Strong and RawMaterial Prices are Relatively Stable> U.S. Dollar Weakens

Manufacturing in the U.S. accelerated more than projected in March on increased sales and demand and relatively stable raw material price for the next few months, reversing the pullback in February. The Institute for Supply Manager’s (ISM) Manufacturing index, which tracks the amount of manufacturing activity that occurred in the previous month, rose 1percent to 53.4 percent in March from 52.4 percent in the previous month. The reading exceeded median forecast of 53.0 from the Bloomberg News survey. The annualized PMI for March corresponded to 3.7 percent increase in real gross domestic product (GDP) annually.

ISM Manufacturing index has stayed above 50-level for 32nd consecutive month, indicating sustainable growth in the manufacturing sector of the world’s largest economy. The index takes into account expectations for future production, new orders, inventories and employment deliveries. Production expanded for the 34th consecutive month as the Production Index surged 3 percent to 58.3 percent in March. New orders continue to be slow to appear with the sub-index slightly falling 0.4 percent to 54.5 percent last month but expectation continues to be high. Labor market condition improved last month with the Employment Index edging 2.9 percentage points higher to 56.1 percent in March. The increase in hiring for the 30th consecutive month is consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment. Meanwhile, Inventories Index came in at 50 percent, indicating that inventories are unchanged from last month.

ISM Prices Index, which reflects business sentiment regarding future inflation, came in at 61.0 last month, below a consensus estimate of 63.0. The print is 0.5 percentage points lower than the 61.0 percent registered in February. This marks the third straight month of price hike in raw materials since September 2011. Price pressures were elevated in fifteen of eighteen manufacturing industries during the month of March, particularly high for textile mills, furniture and related products, nonmetallic mineral products, chemical products and primary metals.

USDCAD 1-minute Chart: April 2, 2012

040212_US_ISM_Manufacturing_March_body_audusd1.jpg, USD Falls after March ISM Manufacturing Accelerated More than Expected

Chart created using Strategy Trader- Prepared by Trang Nguyen

U.S. dollar loses grounds versus most of its major trading partners except its euro and Swiss franc counterparts in early North American today. The dollar extends loss against major currencies after the ISM report showed stronger-than-expected growth in the U.S manufacturing sector that boosts risk sentiment. As can be seen from the 1-minute AUD/USD chart above, the currency pair climbed nearly 30 pips from 1.0390 to 1.0420. At the time this report was written, the aussie was traded at $1.0406.