The US Census Bureau kicked off a jam-packed week this morning with its US Durable Goods Orders index, missing expectations by a large margin to register a month-over-month increase of 0.5% while economists were expecting a 2.5% increase.
Stripping away volatile transportation prices, the core reading came in line with expectations at 1.6%. Transportation orders had a large impact on total month-over-month orders, primarily due to major airlines canceling airplane orders. The core reading is said to provide a better gauge of business investment.
Traders use durable goods orders as a leading indicator for economic activity because rising purchase orders signal manufacturers will increase activity as they work to fill the orders.
While most subcategories experienced a monthly increase, durable goods orders seem to be exhibiting some residual weakness from February’s decline of 0.9%. Keep in mind, these numbers will be revised next week with the release off factory order data.
Overshadowed by Q1 earnings reports and the Federal Reserve’s meeting later this week, the release did not have its usual impact on currency markets. The greenback shrugged off the news and continues to trade at session lows against its Canadian counterpart, with a loss of about 0.24% on the session so far.
Market drivers this week will likely be key US companies reporting their Q1 results and the Fed’s interest-rate decision Wednesday afternoon. Equities tend to be viewed as a leading indicator for the economy, so their full-year guidance might give traders the ammunition they need to feel confident with their inflation bets.
In contrast, Fed Chair Jerome Powell and affiliates have maintained their rhetoric about keeping rates low until 2023 and allowing inflation to run above 2% for an extended period.
Traders were on the edge of their seats last week as the Bank of Canada announced the tapering of its QE program and policymakers there said they could see the first interest rate hike come in the second half of 2022.
With the stage set, will the Fed adjust its communication to the markets? We’ll find out Wednesday.
Business Development Manager, Canada & Currency Analyst
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