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Currencies AUD U.S. Dollar Rises on Fifth Month of Stronger Consumer Spending in February

THE TAKEAWAY: [U.S. personal consumption rose for the fifth month in February] > [Increased spending fuels economy, spurs upward inflationary pressures] > [USD strengthens]

U.S. personal consumption expenditure (PCE) rose for the fifth straight month in February. Core PCE climbed by 0.1 percent in February from the previous month, after rising by 0.2 percent in January. On a yearly basis, core PCE rose by 1.9 percent, unchanged from the pace seen in January. These figures were in line with the consensus forecasts of economists surveyed by Bloomberg News.

According to the Bureau of Economic Analysis, personal income rose by $28.2 billion, or 0.2 percent, while disposable personal income (DPI) increased by $18.9 billion, or 0.2 percent, in February. January’s personal income estimates were revised downwards to 0.2 percent from 0.3 percent. Meanwhile, personal spending soared by $86.0 billion, or 0.8 percent, notably higher than the 0.4 percent gain seen in the previous month. Economists had called for a 0.4 percent increase in personal income and a 0.6 percent gain in personal spending.

Consumer spending is a key indicator of economic health, and is particularly valuable in forecasting inflationary pressures as it used by the Federal Reserve as a primary gauge of inflation. The stronger spending figures seen in recent months, combined with the improving labor market could support a review by the Fed to increase their benchmark interest rates earlier than late 2014.

AUDUSD 1-minute Chart: March 30, 2012

Chart created using Strategy Trader – Prepared by Tzu-Wen Chen

Immediately after the data release, the greenback fell against most major currencies, but quickly regained its footing to rally higher against its peers. At the time of this report, the dollar had strengthened by 10 pips against the Australian dollar to trade at around $1.0385.