The US dollar recovered much of the previous session’s losses on Tuesday as a raft of economic data pointed to the continuing health of the US economy.
In particular dollar-bulls were cheered by data on new home sales, which undid much of the gloom surrounding Monday’s soft existing home sales numbers.
New home sales rose to a record 1.424m in October, far in excess of the 1.2m expected. Even if some of the excess may represent post-hurricane buying, the data certaintly helped to calm fears that the US housing market was slowing, potentially bringing the consumer down with it.
“The data contrast with expectations that the housing market is beginning the process of slowing,” said Mitul Kotecha, global head of forex strategy at Calyon.
“The strength of new home sales is impressive considering the rise in mortgage rates.”
Treasury and Fed funds futures prices fell as the market expressed renewed confidence that the Federal Reserve still has a few more rate rises up its sleeve, aiding the dollar in the process.
“Short-term yields had shifted in favour of the euro but we think the market has got ahead of itself,” said Steven Saywell, chief currencies strategist at Citigroup.
“The US will be tightening more than the market thinks, and while the ECB will hike this week, we don’t think there will be a follow-up hike until June.”
The remainder of Tuesday’s US data flow was also strong. Consumer confidence rose from a revised reading of 85.2 in October to 98.9 in November as concerns over the effects of hurricanes and rising energy prices started to wane. This was the sharpest rise for two years and well ahead of consensus expectations for a bounce to 90.2.
Durable goods orders also beat expectations, although a 3.4 per cent jump in the headline reading in October was distorted by a surge in aircraft orders as a strike at Boeing ended. Core orders actually undershot expectations, but the market seemed to conclude that an upward revision to September’s reading more than compensated.
The upshot was that by mid-session New York trading the dollar was sitting at $1.1767 to the euro, 1.1 per cent above Monday’s nadir of $1.1898. The dollar also rallied to Y119.57 against the yen, 0.9 per cent above Monday’s low and $1.7171 against sterling, 0.9 per cent higher than the previous session’s weak point.
Elsewhere both the yen and the Canadian dollar proved resilient to economic and political shocks.
Japan unveiled soft data, with industrial production rising just 0.6 per cent month-on-month in October, less than half the forecast rate, while unemployment rose from 4.2 to 4.5 per cent.
But with household spending rising, the yen was little changed at Y140.67 against the euro, although it slipped 0.7 per cent to Won8.6833 against he South Korean won, approaching Monday’s seven -year low.
The Canadian dollar withstood the vote of no confidence in the nation’s minority Liberal government to sit virtually unchanged at C$1.1675 against its southern namesake. Not only was the result largely foreseen, but the market was relaxed about the outcome of January’s election. “With the elections likely to result in either another Liberal-led minority government or a Conservative-led minority government, the policy risks are relatively small,” said Mansoor Mohi-uddin, chief forex strategist at UBS.
Simon Derrick, head of currency research at Bank of New York, also noted a 96 per cent correlation between the Canadian/US dollar rate and the price of gold since 2002, on the day that gold hit a fresh 18-year high.
The Norwegian krone fell 0.5 per cent to NKr7.9323 against the euro as Norwegian retail sales volumes fell 0.2 per cent in October, when the market had expected a rise, dealing a blow to rate rise expectations.
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