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US dollar: Weekly outlook

H.S. Borji
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The US dollar has softened in recent weeks amid signs the Federal Reserve would be slow to raise interest rates in the face of weak global recovery and slack in the domestic economy. Speculation about Fed policy will once again dominate discourse this week, as investors look ahead to a flurry of key US data releases.

The US dollar index, a broad performance measure of the greenback against a basket of currencies, was little changed Monday, rising 0.05 percent to 85.15. The index has declined in each of the last two weeks after posting a three-month rally.

The greenback also declined against the Australian and New Zealand dollars, which are not part of the weighted US dollar index.

The AUDUSD rose 0.35 percent to 0.8795. The NZDUSD pair surged 0.52 percent to 0.7974. Both currency pairs were trading near session highs.

The world’s most actively traded currency suffered a setback two weeks ago after the minutes of the September Fed meetings revealed that officials were concerned about a global economic downturn. Those concerns were corroborated by the International Monetary Fund, which downgraded its outlook on the global economy this year and next.

Policy speculation will continue to fuel the dollar this week, as a series of economic data could provide insights about when the Fed could begin lifting interest rates.

On Tuesday the National Association of Realtors will release data on existing home sales. The sale of previously-owned homes is forecast to rebound 1 percent in September, after declining unexpectedly a month earlier. Existing home sales are forecast to reach 5.1 million, in seasonally adjusted terms, following a decline to 5.05 million.

The Commerce Department will report on new home sales at the end of the week. The sale of new homes is forecast to decline 6.7 percent in September after surging 18 percent the previous month.

The week’s biggest release comes Wednesday when the Commerce Department reports on consumer inflation. The consumer price index is forecast to decline to 1.6 percent in the 12 months through September, after posting a 1.7 percent increase a month earlier. So-called core inflation, which strips away the food and energy components of CPI, is forecast to reach 1.8 percent.

On Thursday Markit Group will release a flash estimate of its closely followed manufacturing PMI. The monthly reading is expected to show further softness in the US manufacturing industry in October, although the rate of growth is expected to remain solid. Economists forecast a flash reading of 57.0.

Employment stood out in the September reading, as Markit reported the fastest pace of employment growth in two-and-a-half years.

Separately, the Kansas City Fed on Thursday will release its monthly manufacturing gauge for the Tenth District. The headline reading is expected remain unchanged at 6.0 in October.

Economic data this week are unlikely to alter the Fed’s plans to rein in record stimulus on October 29. Central bankers are expected to vote in favour of reducing the pace of bond purchases by $15 billion, thereby putting an end to quantitative easing.

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