USD: Budget looms
The US may be poised for a government shutdown as the budget faces a vote on Saturday. While the US is no stranger to the government reaching an impasse about funding and closing most of their operations down, this would be the first time that a lack of consensus on the budget caused a closure during a President’s first 100 days in office. Despite a Republican majority in both houses of Congress, Trump faces significant headwinds in passing the US government’s spending plans. Trump tweeted this weekend that he intends to include funding for his proposed border wall, a pill that will be hard for democrats to swallow. Between fighting democrats and placating the more conservative elements in his own party, Trump faces significant hurdles. Democratic Senate leader Chuck Schumer warns that Trump’s involvement could be damaging to negotiations that are so far, so good by “mixing in and asking for things such as the wall in the budget.”
If a government shutdown materializes, everything from the Park Service to trash collection will be closed until a consensus is reached. It will also likely hurt the USD, undermining investor confidence in the effectiveness of the government and threatening the costs to the economy the longer the shutdown runs.
EUR: Euro – En Marche!
Spiking overnight, the euro sits solidly higher against the greenback Monday morning after pro-EU centrist Emmanuel Macron claimed the top spot in France’s first round of elections. This has done much to calm investors’ fears of a showdown between the far-right and far-left candidates in the pool as only the right-wing Marie Le Pen made it through to the second round. On May 7, the French electorate will once again take to the ballots, and preliminary polling has Macron capturing over 60% of the vote, which would make him the next president. François Fillon and Benoît Hamon have both endorsed Macron, Fillon had a simple message to his constituents: not the far-right. While both candidates advocate for change, their views couldn’t be more disparate in how to go about it. Emmanuel Macron embraces globalization and supporting membership in the European Union, whereas Le Pen advocates a more protectionist stance, reinstating border controls and putting a cap on legal immigration.
A Macron win is already priced in, and if polls hold their current trajectory
GBP: Don’t overreact
The big items for sterling this week are consumer confidence Thursday and GDP growth on Friday. Consumer confidence is expected to fall from -6 in March to -7 in April, but as investors seem increasingly interested in ‘hard data’ over ‘soft data’ like sentiment surveys in the UK, we would emphasize GDP on Friday, which is expected to fall from Q4 to Q1, but overall be higher from a year prior.
JPY: Hungry for risk, but not the yen…
The yen took a nosedive after France’s elections spelt ‘vive la risk!’ for investors. Parting with their proverbial security blanket once the geopolitical tensions in France cooled, we saw massive flows out of the yen. We expect JPY to continue to track with risk appetite, making headlines in France’s runoff elections and US policy pushes hot items to watch.
Thursday is interest rate decision day at the Bank of Japan. While they are not expected to change the benchmark negative rate they currently hold, the policy statement and subsequent press conference with Governor Kuroda will be closely watched, given the yen’s rapid depreciation Monday morning.
CAD: Eyeing oil… for now.
The loonie was unable to sustain gains against a weaker USD Monday morning, caving to pressure from weaker oil prices, which continue to feel the weight of negative sentiment when it comes to oversupply. Outside of tracking oil, the CAD could be exposed to broader moves in USD, watch political headlines with Trump promising some insight on tax reform Wednesday and the budget this weekend.
Domestic data will eye Wednesday’s retail sales for February – which are expected to fall to 0.2% after gaining 2.2% in January, and Friday’s GDP growth for the same month – analysts are expecting a 0.5% drop from January’s figures which doubled expectations thanks to gains in goods-producing sectors.
AUD: Inflation expected to gain, but where there’s smoke we may not have a fire
The Reserve Bank of Australia will release their inflation figures mid-week, and analysts are expecting them to inch up in Q1 to the bank’s target – but don’t break out the party poppers quite yet. While this would confirm an upward trajectory that has run for three quarters now, underlying inflation continues to suffer from softness in the labor market once gains from fuel and oil are discounted. This will make Governor Lowe’s speech on Wednesday.
Quiet otherwise on the calendar for both Australia and China means that Aussie dollar may follow the winds of risk appetite and moves in the USD.