US Dollar gains some ground ahead of GDP data
- US Dollar rally is likely to continue, fueled by resilient US economy and higher US Treasury yields.
- Durable Goods Orders from March were solid.
- Hawkish bets on the Fed might also benefit the US Dollar.
The US Dollar Index (DXY) is trading mildly higher at 105.90, buoyed by high US yields amidst hawkish bets on the Federal Reserve (Fed). The US economy continues to display robust growth, which has forced markets to delay their expectations on rate cuts.
In the US, the Fed maintains a steady hawkish stance despite soft preliminary PMIs in April. Additionally, persistent high US Treasury yields due to heavy supply injection could further boost the US Dollar. The week’s highlight will be March’s Personal Consumption Expenditures (PCE) on Friday and Gross Domestic Product (GDP) preliminary readings from Q1 on Thursday.
Daily digest market movers: DXY holds gains after mid-tier data
- Durable Goods Orders reported a 2.6% increase in March, albeit with the previous surge of 1.3% significantly revised to 0.7%.
- Orders Excluding Transport posted a rise to 0.2%, reversing a revised decrease from 0.3% to just 0.1%.
- Fed’s present stance on monetary policy implies that easing expectations remain low and steady. The market forecasts low chances for a rate cut in the upcoming June meeting, while July sees a diminished likelihood at 45%. By September, a rate cut still isn’t entirely anticipated with probabilities reduced to 90%.
- US Treasury bond yields showcase a mixed tendency. The two-year bond yield is seen at 4.93%, the 2-year yield at 4.66%, and the 10-year bond yield stands at 4.65%. Despite the mixed movement in yields on Wednesday, increasing US Treasury yields generally support Greenback strength.
DXY technical analysis: DXY bullish momentum continues flat, markets await direction
The indicators on the daily chart reflect a mixed scenario. The flat position of the Relative Strength Index (RSI) in positive territory indicates that the buying momentum is present but somewhat subdued as there seems no definitive direction. This suggests that bulls are exerting control but are struggling to gain further ground.
The decreasing green bars of the Moving Average Convergence Divergence (MACD) hint at slowing bullish momentum, making a potential transformative shift into bearish territory possible as the selling force starts to press forward.
However, the bigger picture is slightly more nuanced. Despite this sluggish bullish momentum in the short term, the DXY is currently trading above its 20,100 and 200-day Simple Moving Averages (SMAs). This not only points toward persistent buying pressure but also signals a more long-term bullish bias.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.