Five Economic Data That Affect Dollars
Forex traders are always looking for information that will provide insight into the movement of the dollar up or down. For stock traders, there are several indicators used to track the health of the companies they invest in. There are also various economic reports that provide insight into the direction of the dollar.
Fundamental analysis involves the use of data to differentiate information about investments. Because the economy is dynamic, the value of insight given by certain data at a certain time becomes very important. For example, as the US economy develops, inflation concerns cause an increase in the focus of investors or traders on data that provide an indication of inflation. As the economy contracts, reports of economic data showing a decline in consumer activity may weigh more on the dollar. For this reason, various economic reports are useful when researching the dollar. Some important macroeconomic indicators will be discussed below.
Keep in mind that actual values are often less important than data movements (up or down) and investors will see the actual value comparison is greater or less than analyst estimates before release. Also if there is a striking value of analyst estimates, it will usually give a large movement in a pair.
The Trade Balance is produced jointly by the Bureau of Economic Analysis (BEA) and the US Census Bureau, providing detailed information on import and export activities. The most common way of assessing trade balance data is the value of trade deficit, which represents the current US dollar dollar value minus the current US dollar import value. If imports exceed exports, the country is said to have a trade deficit. In contrast, exports exceeded imports, the country is said to have a trade surplus.
If there is a trade deficit then it will be bad news for the dollar. This means that foreign goods (imported products) are more desirable. The goods are ultimately bought in foreign currency which creates a higher demand for foreign currency. Unlike the trade surplus, this means that foreign consumers buy more goods from America. This will lead to increased demand for the dollar.
Trade balance data released 35 days after the end of the month referenced.
Nonfarm Payroll employment data, produced by the US Labor Workers Bureau. The NFP data tracks the number of people employed the previous month, outside the agricultural sector. If the current economy adds people employed at a healthy rate, interest rates can move higher. Higher interest rates appeal to foreign investors thereby increasing the demand for the dollar. Conversely, with the reduced employed people potentially pushing interest rates down and weakening dollar demand. This NFP data is released every Friday of the following month.
Gross Domestic Product
Data Gross domestic product (GDP) or often called GDP tracks the monetary value of all finished goods and services produced within the borders of the country within a certain period of time. It is used as a health measure of a country. Similar to NFP data, if the GDP value rises then the interest rate tends to rise. Higher interest rates can attract foreign investors and tend to push the dollar up. If the value of GDP falls then the dollar tends to fall. The Bureau of Economic Analysis released this GDP data on the last day of each quarter.
Retail Sales Data is a comprehensive measure of the sale of retail goods over the stated time period. Strong sales showed a strong economy, while weak sales showed a weak economy. Here again, the power in sales equals the power in dollars.
Retail Sales Data is issued by the Census Bureau and drawn up with the Commerce Department around the 13th of every month. This data shows retail sales the previous month.
Industrial Production Data is based on monthly volume of raw goods produced by industrial companies such as mills, mines and electric utilities in the United States. Also included in industrial production data are newspaper business, periodical publishing and book publishing, traditionally labeled as manufacturing. Industrial production data usually reflects changes in overall economic activity, so strong industrial production figures are a bullish sign for the dollar and weak data is a bearish sign. This data is released by the Federal Reserve board on the 16th of each month. This data shows industrial production the previous month.