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Michael Sankowski
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Michael Sankowski lives in Oak Park, IL. Michael has been a professional trader for 20 years and traded billions of dollars on four continents. He's traded Futures, Currencies, Stocks and written for Agora Publishing, Absolute Wealth, and SFO Magazine. He's a CFA Charterholder and CAIA... More
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  • U.S. Durable Goods Could Strengthen Canadian Dollar 0 comments
    Mar 26, 2012 7:40 AM | about stocks: FXC

    U.S. Durable Goods comes out Wednesday. This particular number could be absolutely huge in impact. There is little consensus on the recovery/recession debate here in the U.S.

    This durable goods is a big number for estimating how the U.S. economy is performing right now. The expectation is +3%, I am looking for it to be higher.

    Last month was horrible, so the expected gains better be there this month or we're going to have a bad surprise.

    The chances of a significant surprise in either direction are high. We have oil prices skyrocketing - which could have taken a huge bite out of consumer spending. But then we also had the warmest March on record, sustained employment growth, and the tax cut extension, all of which should have boosted spending.

    Last months negative number was something of a surprise. What factors will dominate this month?

    The number will have important implications for several huge debates unfolding in the currency markets:

    1. Inflation vs. Deflation: As long as the U.S. economy is going ok, then there will be a subset of traders/investors/analysts terrified of inflation. A good number will stoke inflation fears.

    2. Recession/Recovery: The argument right now is we're either falling off a cliff or in a decent recovery. The high oil prices seem to have taken a toll on mood for people, but those oil and gasoline prices seem to be the only complaint. If we see actual orders, the mood doesn't matter

    3. China slowdown/Continuation: If the U.S. is booming, China is on a rocket. This is the conventional wisdom. A decent durable goods number will dampen fears of a slowdown in China.

    These market debates make this particular durable goods number more important than most. The number will give evidence to help settle these debates.

    Over the last few weeks, we're seeing the the currency wars start to fire up again. The U.S. has been stronger than expected, and this has tended to translate into a stronger USD and increasing interest rates for U.S. Treasuries.

    This is unusual for the last few years. Since the crisis until just recently, the USD and U.S. Treasuries have moved in tandem.

    A better than expected durable goods number should be good for the U.S. and the Australian Dollar, and also for the Canadian Dollar. The Australian and Canadian dollars are both "commodity currencies" and a recovery in the U.S. means demand for commodities.

    I think the biggest impact from a good number will be on the Canadian Dollar. The Canadian Dollar tends to follow oil - as oil goes up, the CAD goes up. But when oil gets too high, the CAD tends to stay put. This is because the high oil prices (good for CAD) are offset by the implied U.S. recession from high gasoline prices(bad for CAD).

    A strong Durable Goods number means the best of both worlds for the Canadian Dollar. High oil prices plus a strong U.S. economy means the Canadian Dollar could see significant gains.

    Themes: USDCAD Stocks: FXC
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