US Dollar Consolidates Ahead of Monday's ISM Data

The US dollar pulled back from early morning gains as fresh economic data weighted on future growth prospects and traders looked to clear their books ahead of next week’s busy calendar. As a result, the US dollar slid across the majors but recovered from a two-day losing streak against the Canadian dollar – with data from the latter currency aiding push. The high-yielding New Zealand and Australian dollar picked up minor gains against the greenback as commodity prices moved higher, and led the pairs to trade at 0.783 and 0.956, respectively. On the other side of the yield spectrum, the Swiss franc took the biggest bite out of the US dollar, while the Japanese yen inched higher to 105.4 against the greenback. The dollar would also lose ground against the Euro and British pound. And, volatility will certainly be an issue going into next week with each currency holding a rate decision in their respective dockets.

Back in the US, fresh economic data lowered the growth outlook for the world’s largest economy. The Commerce Department highlighted a 0.2 percent slip in Personal Income and Spending as both indices fell to 0.2 percent from 0.4 percent respectively. The decline in spending does not bode well for second quarter GDP expectations considering it was one of the strong points of the first quarter’s positive revision. Spending is also looking suspect after the release of the final reading of the University of Michigan’s consumer sentiment survey confirmed its 28-year low with a slight upside revision to 59.8. Further generating concern about growth trends, manufacturing activity promises little positive support for second quarter activity. The Chicago PMI reported a contracting factory base even though the index posted a minor improvement with a reading of 49.1 from April’s 48.3.
Rising oil prices limited the appeal of stock investments, and swayed the markets as investors curbed their risk appetite. As a result, the DJIA fell 7.90 points to 12,638.32 points, with 16 of the 30 components declining. Among the broader indices, the S&P500 gained 2.12 points to hold up at 1,400.38 points, with 123 stocks rising to a new 52 week high.

Falling stock prices spurred demands for US Treasuries, and led risk adverse investors to seek the safe haven of risk free bonds. As a result, the benchmark 10-Year yield fell to 4.063 percent from 4.083 percent, while the 2-Year yield plunged to 2.653 percent from 2.686 percent.
Looking ahead, the majors are looking at a very volatile week. On the other side of the market, the central banks for Australia, New Zealand, the Euro-Zone and the UK will alter the market’s view of the FOMC and its own stance. Closer to home, the US dollar will likely find a greater platform for price action in the ISM Manufacturing and Non-Farm Payrolls readings. Once again, these numbers will be treated as a litmus test as to whether the world’s largest economy will be able to avoid negative growth through the second quarter.