The US dollar spent much of Friday consolidating the previous day’s moves, especially against the euro, as the currency only rose against the Canadian dollar and British pound. Meanwhile, the Japanese yen was easily the biggest gainer as some disappointing US data put a dent in prospects for a robust economic rebound. Indeed, US durable goods orders expectedly fell 2.4 percent in August, marking the steepest decline since January 2009, after surging 4.8 percent in July. The decline was led primarily by transportation, and excluding this factor, orders went unchanged from the previous month. Furthermore, capital goods orders excluding aircraft - a leading indicator for business investment - fell negative for the second consecutive month, indicating that investment remains weak and may remain so in coming months.
On the other hand, the final reading of the University of Michigan’s consumer confidence index reflected a large improvement in sentiment in September, with the index hitting a 21-month high of 73.5 from 65.7. A breakdown showed that as the “economic conditions” component rose to a 1-year high of 73.4, while the “economic outlook” jumped to a 2-year high of 73.5. Finally, US new home sales grew a slight 0.7 percent in August, bringing the annual rate up to a nearly 1-year high of 429,000. Furthermore, supply levels have come down to 7.3 months from 7.6 months, and all of this has likely been helped along by the 9.5 percent drop in median prices from July and the 11.7 percent plunge from a year ago to $195,200
Looking ahead to next Tuesday, the September reading of the Conference Board’s measure of US consumer confidence is expected to rise up to a one-year high of 57 from 54.1 in August, but overall, there are some upside risks for this report given the strong readings we saw in the University of Michigan’s measure. In light of broad sentiment that the US economic outlook is brightening, disappointing numbers could have especially negative repercussions for risk appetite, but if the index rises in line with expectations or proves to be surprisingly strong, FX carry trades could gain and weigh on the US dollar.