Latest figures published relating to the Durable Goods Orders are set to spark a decline in the USD. The results place pressure on the Federal Open Market Committee to increase rates at the last meeting of the year, taking place on December 14th.
What is the Durable Goods Orders?
Governed by the US Census Bureau, the Durable Goods Orders measures the overall cost of durable goods orders received by manufacturers. It applies to any goods that are designed to last for at least three years including appliances and motor vehicles.
The reason these goods are measured is because they typically involve fairly large investments and therefore can have a significant impact on the US economy. If the reading is high, it signals a bullish USD.
So where does the data come from? Each month, the data for the Durable Goods Orders is compiled from over 4,000 durable goods manufacturers. There are over 85 industries included, covering the whole of the US.
The data that is compiled, forms one of the 10 different U.S. Leading Index components.
Understanding the recent figures
As of Wednesday 23rd November, recent figures show the Durable Goods Orders crashed in June by a significant 4%. This continued the bad news from May, which saw a reported -2.8% drop, higher than the 2.3% expected. Furthermore, the number of Core Orders had been expected to rise, though they actually dropped 0.5%.
Prior to the release of this new data, the USD was actually faring pretty well. In the trading market, it was only the USD/JPY that was changing. This was down to very confusing reports that were issued about the potential of BOJ.
While there has been speculation as to whether the Federal Open Market Committee would increase rates in December, it is now said to be a 90% probability. If they choose to hold off on increasing the rates, there’s concern the USD will face significant headwinds throughout 2017.
It is the rate hike worry that is largely contributing to the drop in the USD. However, there has been improved confidence and private sector credit expansion could really help to encourage more durable goods orders in the US.
How the data helps investors
The reaction of the USD isn’t all bad news. Opportunists watching the markets can always benefit from fluctuations in currencies and using online resources and tools such as Forex.com’s trading platform and making sure they keep a close eye on the markets. It’s also useful for investors to pay attention to the Durable Goods Orders data released each month, as they can clearly see business demand and order levels; making it easier to determine where to invest.
Data is also provided on potential future investments, highlighting new businesses and inventory levels. However, it isn’t without its downsides. The Durable Goods Orders doesn’t show standard deviation statistics and is highly volatile. Long term trends will need to be identified via moving averages.
Overall, the Durable Goods Orders data is set to have a negative impact on the USD in the short term. The effect could be longer-lasting if the interest rates do increase later next month. However, investors are still somewhat positive about the future outlook of the USD, as Durable Goods Orders do look set to bounce back in the not-too-distant future. While it does have weaknesses, the Durable Goods report offers a lot more insight into the current state of the supply chain than the majority of other indicators.