Durables Disappoint, USD Dumped

A weak durable goods orders report emphasizes the shakiness of the US recovery. The yen rallied late in the day but the loonie was the top performer while the euro lagged. The Fed's Bullard is scheduled to speak in Asia-Pacific hours.

The main headline of the durable goods orders report was upbeat but the details told a far different story. Overall orders rose 2.2%, easily beating the 0.8% consensus but the gains were entirely driven by volatile aircraft, defense and auto orders. Core orders, which excludes those and other elements, fell 1.3% compared to a 0.5% rise expected. Even worse, the prior month was revised to +0.8% from +1.7%.

The good news is that that report was for February and the base case for dollar and stock market bulls is a pickup starting in March/April as the weather improves. Next week's ISM and jobs reports will be the first good look at this month's data.

So far signs are moderately positive. Consumer confidence rose to a 4-year high on Tuesday and today's March Markit services PMI rose to 55.5 from 53.3 in February.

The Australian dollar remains a standout performer after the close above the 200-day moving average and comments from Stevens. His efforts to talk down the Aussie were half-hearted and his talk about better growth and higher inflation remove the threat of rate cuts.

Another currency benefitting from a squeeze is the loonie. Speculators are heavily long USD/CAD but the pair has fallen for four consecutive days. Last week's better CPI and retail sales numbers reverberate; the approval of some LNG projects helped on Wednesday as well but with the BOC still leaning toward rate cuts, most traders are waiting for the right dip to buy.

The risks are low in the hours ahead but one event to watch is the 0020 GMT speech from the Fed's Bullard in Hong Kong. He's an outspoken central banker and could shed light on when the Fed hopes to hike rates.