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US Service Sector Index Supports Greenback

Don Curren November 5, 2019

The US dollar advanced Tuesday morning, building on its gains in earlier sessions this month after the October ISM non-manufacturing index came in at 54.7, considerably stronger than the 53.5 expected by economists.

The robust performance comes after stronger-than-expected showing by the US nonfarm payrolls report for the same month released on Friday, and suggests the services component of the US economy remains resilient despite political and economic uncertainties at home and abroad.

The results suggest the US Federal Reserve, which cut rates for the third time this year last week, will be less inclined to provide more monetary stimulus by relaxing rates in the coming months.

The US dollar extended its overnight and early morning advance against the euro, gaining about 0.2% against the euro in the aftermath of the report, and the trade-weighted dollar index advanced by 0.1%.

The Institute for Supply Management said the non-manufacturing sector had an uptick in growth after reflecting a pullback in September. “The respondents continue to be concerned about tariffs, labor resources and the geopolitical climate,” it said.

The Institute said the new orders index registered at 55.6, 1.9 points higher than the reading of 53.7 in September. The employment index increased 3.3 points in October to 53.7 from 50.4.

Data on international trade in goods and services released earlier Tuesday also bested expectations. The US Census Bureau said the nation’s international trade deficit decreased to $52.5 billion in September from $55.0 billion in August as imports decreased more than exports, a result closely aligned with economists’ expectations.

September real dollar imports of petroleum of $27.6 billion were the lowest on record, since the series began in 1994, the Census Bureau said.

North of the border, Statistics Canada reported that Canada’s imports fell 1.7% in September, while exports declined 1.3%, leaving Canada’s merchandise trade deficit with the world at 1.2 billion Canadian dollars in August to 978 million in September.

Economists had anticipated that Canada’s trade deficit would contract to 600 million Canadian dollars in September.

StatsCan said total imports fell 1.7% to 50.8 billion Canadian dollars in September. Total imports in the first nine months of the year were up 1.7% compared with the same period in 2018. In real terms, imports were down 1.6% in September.

Total exports fell 1.3% to 49.8 billion Canadian dollars in September, largely offsetting the increase in August, StatsCan reported. Export volumes declined 2.1% in September.

It’s a relatively quiet week for forex markets compared to last week’s volley of first-tier market movers, including interest rate decisions from the US Federal Reserve and the Bank of Canada and the monthly US nonfarm payrolls report on Friday.

The service-sector ISM, which the most important single data release in the week, will help ratify the US dollar’s relatively strong performance so far in the month of November.

Don Curren 
Market Strategist and Content Editor

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