FOMC Not the Only Thing on the Calendar Affecting Dollar (page 1 of 2)

US Dollar

After four days of persistent strength, the dollar finally gave back some of its impressive gains. Durable goods orders were suppose to be the day's most market moving piece of data, but instead it was new home sales that sent the dollar tumbling.

Perhaps it was the fact that the durable goods report was a bit confusing with the headline number reporting that orders rose 2.6 percent last month but orders excluding transportation actually fell 1.3 percent. Overall, the number was mixed and didn't give dollar traders clear enough information to cause a major move in the market.

However, new home sales did. After yesterday's strong resales figures, the market was banking on a stronger than forecasted new home sales report. It is only natural to assume that if resales hit a two year high last month that new homes would also benefit somewhat. However, according to the Commerce department, sales of new single family homes fell a whopping 10.5 percent to the lowest level since February 2003.

This is extremely concerning since new developments have played a major role in fueling speculative activity in the housing market. Should new home sales continue to falter, not only would this mean that the housing market is finally suffering, but it also suggests that we will begin to see a ripple effect on businesses tied to housing. In particular these include construction companies, companies involved in home improvement, real estate agents and mortgage brokers.

The list of industries that are directly or indirectly affected are endless. For months now, inventory has been rising in the "hot states" that have experienced some of the biggest increases in home values over the past few years. According to a report released yesterday by the Florida Association of Realtors, sales of existing family homes fell 20 percent.

California, another hot market saw a 15 percent slide in sales. Despite the strong resales number released yesterday, we wondered how much longer the strength could continue given back to back rate hikes by the Federal Reserve, which increases the cost of borrowing higher. It now seems that we didn't have to wait that long given today's new home sales report. We have an extremely busy week ahead of us.

Not only is the Federal Reserve expected to deliver another much anticipated rate hike, but consumer confidence, GDP, personal income, personal spending, factory orders and Chicago PMI are also due for release. Meanwhile the price action in the New Zealand dollar today is worth noting. The currency fell 2.4 percent against the dollar and has actually been selling off for 2.5 months now as Finance Minister Cullen gives his blessing for further weakness. The initial sell-off in the NZD a few months ago was also triggered by similar rhetoric from government officials.

Euro

If it wasn't for US data, the Euro would have probably ended the day unchanged against the dollar. There was little action in the single currency despite slightly softer consumer prices out of Germany this morning. The preliminary CPI numbers for this month indicated that annualized CPI growth has dipped from 2.1 percent to 1.9 percent.

Although this is only a preliminary figure, it is below the ECB's target which suggests that central bank may not feel as compelled to press forward with rate hikes. This does not mean that they would refrain from raising rates at their next meeting, but instead they may not proceed as aggressively.