Markets shun the US dollar

Kia ora,

Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news its all about the US and the sharp weakening of the greenback. It is now at its lowest level since early 2022. And a key part of the reason is worries about the Trump attack on the Fed's independence.

Meanwhile, US initial jobless claims have stayed elevated although they fell from the prior week to +227,000 which is marginally above the same week a year ago. There are now 1.87 mln people on these benefits, +124,000 more than the 1.75 mln a year ago.

US Q1-2025 PCE inflation was revised higher overnight to 3.7% in updated data - and that is up from 2.4% on Q4-2025. Early impacts of tariff-taxes are starting to show through here. Real consumer spending was revised down to just +0.5% growth from the initial estimate of +1.2% and well below the Q4-2024 rise of +4.0%. These revisions don't paint a very good picture about how American consumers fared in early 2025. Final GDP 'growth' fell -0.5% in the quarter, the first decline in three years.

But there was a good rise in durable goods orders in May, up +17.5% from the same month a year ago. But non-defense capital goods orders rose only +2.4% suggesting board rooms remain hesitant, and see the tariff-related order rush as nothing more than temporary.

Certainly the Chicago Fed's National Activity Index doesn't point to any upturn. Nor does the latest regional Fed survey, this one from the Kansas City Fed.

The May US trade balance wasn't great either, coming in with a worse deficit than expected at -US$93.7 bln with exports dipping and imports rising from April. From a year ago the result was little-different.

Globally, policy imbalances cause distortions as you would expect, and in the short term at least, they can juice up trade activity despite their intentions.

Elsewhere in Singapore, industrial production slipped in May to be 'only' +3.9% higher than year-ago levels. In April the gain was +5.6% so a clear easing, even if it wasn't as much as was anticipated.

More generally, we will need to be careful talking about commodity prices when the US dollar is on a downslide. Almost everything is quoted in USD so rising prices now largely reflect that depreciation.

Freight rates are falling after the relatively brief 'Iran crisis' hot war. And they too are quoted in USD so the falls will be magnified in other currencies. Container freight rates were down -9% last week from the week be