10 Most Important Forex Indicators for USD

Last Updated July 23rd 2021
6 Min Read

The United States Dollar has been the world’s most powerful and most traded currency for a long time now. It is not surprising, given the reputation and standing of the US being the world’s largest economy. 

As the world’s reserve currency – the one that is held by not just the central banks but also leading financial institutions to undertake international transactions – the USD is a key icon of the global economy. 

These are some of the key macroeconomic indicators that directly and indirectly impact the USD. 

10 Most Important Forex Indicators for USD

1. Gross Domestic Product - GDP

The GDP or the Gross Domestic Product is the most widely accepted and all-encompassing indicator of the economic state of a country. It is defined as the value of all the final goods and services produced within the boundaries of a nation. 

The post-world war United States has been the leading economy in the world with its GDP even accounting for half the global economic output. 

Any change in a nation’s GDP has an effect on the interest rates as well. An increase in the GDP tends to result in a spurt in the interest rate that, in turn, helps boost foreign investments. This, obviously, has a positive impact on the currency market and, in this case, an upswing in the USD rates. 

Should the GDP fall, the reverse also happens. Interest rates too take a plunge and so will foreign investment and, eventually, lead to a drop in the foreign currency rate. 

2. Non-Farm Payroll

The Non-Farm payroll published by the United States Bureau of Labor Statistics focuses on employment numbers with data shared on fresh jobs added and existing ones lost, month on month. 

When more and more jobs get added, it has a positive influence on the interest rates that, in turn, increase foreign investments. That, finally, helps strengthen the USD and push its rate up. 

Released weekly on Fridays, the report has a strong connection with the GDP and the forex market. As increasing employment is also one of the three monetary objectives of the Federal Reserve, the Non-Farm payroll data has a bearing on the monetary policy as well. 

3. Durable Goods

This is a manufacturing-based indicator that reports the value of the orders received by manufacturers for durable goods in the United States. Here, durable goods are defined as those that are expected to last for at least 3 years or more. Typically, this includes appliances and equipment and does not include any product from the transport industry. 

The Durable Goods Orders is an important indicator as it focuses on industrial production and holds a mirror to the economic situation of a nation. After all, only in a sound economy will there be an increase in orders of costly durables from buyers and manufacturing from companies. 

Understandably, the higher the durable goods orders, it augurs well at the forex market and helps the USD climb further.

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4. Home Sales (Existing and New)

The property market, comprising of both existing and new home sales, is a vital sector in any country’s economy. In the US, this data can be found in the New Home Sales published by the US Census Bureau while the Existing Home Sales report is released by the National Association of Realtors. 

A better than expected reading is a good sign for the economy, in general, and helps create a positive sentiment for the USD too. 

5. Personal Consumption

Another important indicator that reflects the state of a country’s economic performance is personal consumption. This refers to the consumer spend that happens in the US and the value of all the goods and services purchased within the country. 

The report, published by the Bureau of Economic Analysis (BEA), holds special relevance as consumer and household spends make up for two-thirds of the US GDP. 

6. Trade Balance

Trade balance comprises of exports and imports and has a direct bearing on the forex market of any nation. The trade balance is a crucial indicator for a strong economy and impacts the price of its currency

The US trade balance report is prepared by the Bureau of Economic Analysis and the US Census Bureau for two months together and is release five weeks after month end. It indicates whether there has been a trade surplus which is an increase of exports over imports or a trade deficit which is the converse. 

This is directly related to the USD with a trade surplus indicating a higher demand for US goods in foreign markets resulting in higher exports. This can be a positive sign for the USD driving its price up. Conversely, a trade deficit results when there the imports are higher which puts pressure on the USD and pulling it down. 

7. Consumer Price Index – CPI

Published by the US Bureau of Labor Statistics (BLS) on a monthly basis, the Consumer Price Index or CPI as it is commonly known measures the movements in prices of a pre-determined group of consumer goods and services. The CPI report helps to compare what the goods and services cost this month with what it cost a month or a year ago and how quickly the prices are rising or falling. 

The CPI is a leading indicator as it can be used to track price changes and reflect inflation rates. The US Federal Reserve Board closely watches the CPI make sure to maintain price stability.

A rise in prices on the CPI indicates a weakening in the purchasing power of the USD and vice versa.

8. Industrial Production – IP

The industrial production index measures the level of US output and activity of the industrial sector that includes manufacturing, mining, gas and electric-based industries as compared to a base year. The data is compiled by the US Federal Reserve Board and released every month on the 15th. 

The better the reading, the higher the appreciation of the USD and, conversely, a weak data can also push down its demand and rate.

9. Retail Trade

Retail trade is a compilation of the sales of retail goods over a stated time period along with the percentage change in the figure from the previous month. The sales for retail trade, also known as retail sales, is compiled by the US Census Bureau and the Department of Commerce and released every month on the 15th. The retail trade includes the personal consumption expenditures which is one of the key contributors to the growth of the US economy.

Greater sales point towards a strong economy, while weaker sales suggest a weak economy.

Check Out: 20 Types Of Technical Indicators Used By Trading Gurus

10. Current Account

The current account of a nation has a direct bearing on economic indicators and also influences the currency’s performance. 

The US current account index measures the monthly economic transactions between US accounts and accounts from other countries. This includes exported and imported goods, services and interest payments.

If the US economy shows a trade deficit, this means that the country has spent more on imports than it earns from the sale of its exports, and vice versa.

You must understand the most important forex indicators that influence the USD if you wish to trade in that currency. The above-mentioned parameters are a good place to start your analysis.

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