Oil futures rose to a record high of $ 70.85 on August 30, a day after Hurricane Katrina plunged the Gulf Coast coast of the United States. Although oil prices have fallen in the coming weeks, Tera APP Software is worth considering the effects of rising commodity prices and inflation on the foreign exchange or forex market, especially for the US dollar.
Traditional demand and supply factors have certainly contributed to the long-term upward trend in energy prices. The demand side of this equation has been under increasing pressure this year with a focus on rapid economic growth and the consequent increase in demand for oil in both China and India. However, the recent jump in oil prices can be attributed mainly to speculations related to this hurricane, especially in the futures market, as well as the limited and concentrated refining capacity in the United States on the Gulf Coast.
Economic data released in recent weeks have begun to reflect the effects of natural hurricanes such as Katrina and Rita, which swept through the Gulf of Mexico in the United States in August and September. These data reinforced the belief of the US Federal Reserve that the economy is growing at an accelerated pace, so inflation, not recession, should be a concern.
Employment data for September showed the first net job loss since May 2003, but this month’s 35,000 jobs decline was below market expectations. The consumer price index for the month showed its biggest monthly rise in nearly 25 years. However, when the volatile fuel and food components are removed, then inflation will rise by an average of 0.1%, which is lower than market expectations, as well as the assumption that higher fuel prices have not yet been translated into the basic reading of inflation levels.
Similarly, the September producer price index surpassed its previous forecast for the largest monthly increase in nearly 15 years. However, once the prices of fuel and food items are removed, wholesale prices will rise by 0.3%. However, this fundamental release of the producer price exceeded expectations, so one can conclude that high energy prices began to affect prices at the wholesale level and that it is not a matter of time before the price rises are passed to consumers. Retail sales, which came in below expectations, as consumer confidence fell to a 13-year low, rising energy prices are already beginning to weigh heavily on US consumer sentiment. So the question will be how this focus will be shifted in the retail sector, especially as the holiday season approaches, which is one of the main focus on Wall Street.
After the word “inflation” has become commonplace today, we expect the Fed to continue its policy of monetary tightening. The Fed raised interest rates by 25 basis points to 3.75% in September, its 11th consecutive increase since June 2004. Another hike is expected in October or at least an additional 25 basis points to be approved from November to December.
The rise in US interest rates in parallel with the growth of the US economy has been the driving force behind foreign inflows towards US Treasuries and the stock market, respectively. These flows translate into demand for the US dollar, which kept the greenback strong during September and October. While we can confirm that the stock market at this stage seems somewhat weak, the different picture of interest rates is supposed to make the US dollar attractive until the end of this year.
Rising interest rates and inflation fears are no longer confined to US policymakers or finance ministers from the G-20, which includes some of the major industrialized nations and some developing countries, and are expected to hold a meeting in Beijing this month. According to the statement issued on October 13, the rise in oil prices “may increase inflationary pressures and lead to a slowdown in economic growth as well as instability in the global economy.” This scenario is supposed to support the US dollar also because in times of economic uncertainty, The dollar, which is a “safe haven” currency, attracts large inflows into it. While we may see other countries starting to tighten their monetary policy, US interest rates are expected to remain high in the near future.
The recent move by the Yen Dollar above 115 level bodes well for the USD to gain additional gains within the 118/20 area. On the other hand, the July lows for EURUSD below 1.1868 should be broken below to stimulate further USD gains against the EUR. Tera APP Review move may shift attention towards the 2004 lows at 1.1759 – 78 initially but expectations are heading towards a sharp decline towards 1.1500.
In times of inflationary pressures, the US dollar tends to retreat against commodity currencies. Commodity currencies are the currencies of countries that achieve the bulk of their export earnings through the sale of primary commodities. The most notable examples of liquid commodity currencies are the Canadian dollar, the Australian dollar and the New Zealand dollar.
The dollar hit a 17-year low against the Canadian dollar as oil and metal prices surged. Although the US dollar has recovered from its current lows, the recent gains remain within the corrective range and therefore will likely continue the long term downtrend for the USDCAD. Similarly, the AUDUSD and the NZD are still consolidating below the important resistance lines with expectations of further gains in the short and medium term.
At some point, domestic inflation and the rise in the US dollar will draw attention to the US trade balance deficit as well as the balance of payments. Because US goods and services are becoming more expensive as the dollar rises, so consumers both inside and outside the country will start the event with other, more affordable goods. This is the main reason behind our belief that US stocks are in a weak position at the current stage. The downside risk in the stock market will certainly have a negative impact on the flows towards the US dollar and therefore the long-term downward trend in the dollar’s price is likely to re-impose itself.
The conventional wisdom in the field of financial services suggests that the allocation of between 5 and 10% of the portfolio of investment traders in alternative investments such as those offered by the CFC would be desirable to achieve the necessary diversity and protect the investor from unfavorable movements in the traditional asset class.
Durable Goods and the Forex Market
Forex traders like other investors in major markets give great attention to the economic news released throughout the day. This is due to the fact that economic data (or economic indicators) often affect the trading trends both in the stock market or in the currency market. One of the most common economic indicators used by Forex traders and other investors is the durable goods report.
Definition of durable goods
Before discussing the same report, the term “durable goods” needs some explanation. Durable goods are goods that have been kept for more than three years or, in other words, the consumer expects to purchase goods that he will not replace in the near future. Examples of durable goods are cars, furniture, machinery, hardware and manufacturing equipment.
Durable Goods Report
The durable goods report is issued within the 20th of each month to measure the activities of the previous month. The report measures the number of new orders from durable goods orders, leaving data from more than 4,000 plants in about 85 industries. Typically, the transfer and defense processing numbers are deducted from the report due to their high degree of volatility.
This report is vital to investors as it is one of the leading indicators of the economy as a whole. This means that when the figures of the report are strong (ie, the high number of orders or orders), this means that consumers are likely to buy more durable goods, which gives a boost to the local economy. On the other hand, if Durable Goods demand figures fall, this means that consumers are likely not to increase their buying levels, which has negative effects on the currency rate.
Non-defensive capital goods
In addition to the large number of durable goods orders, TeraAPP report also includes requests for manufacturing non-defensive capital goods. Non-defensive capital goods refer to orders for capital equipment manufacturing in non-defense areas, which is one of the important parts of the report as representing the manufacturing sector of industrial production tools in all sectors of the national economy. Like other sectors, non-defensive capital goods orders are a leading indicator of the health of the economy as a whole. If the demand for these types of goods increases, this is a good indicator of the growth of the economy (and consequently positively affects the currency price). On the other hand, the decline in demand for the manufacture of this type of goods is a strong signal of the possibility of imminent decline in economic activity.