• Crisis averted
  • Tepid sentiment hurts Chinese PMIs
  • Q1 weakness continues to carry
  • Le Pen plays hardball

A busy week ahead on the data front kicks off with good news for the greenback – congress has agreed on a spending package, soothing political tensions and averting a government shutdown. Armed with a $1.1 trillion dollar plan, their bill will fund the federal government through September. Many Asian and European markets are closed for Labour Day, making larger moves more challenging to pick up amid lighter trading volumes. The two key data points investors are eyeing for the US this week will be the FOMC meeting on Wednesday, and non-farm payrolls on Friday. No meaningful changes are expected from the Fed, thus even slight changes in the language could impact currency markets. The US is expected to add 185 thousand jobs in April after a huge miss in March’s figure.

Consumer spending stalled in March, another nail in the coffin for a weak first quarter. While this is unlikely to derail the Fed’s plans for the rest of the year as they have already discounted Q1 weakness, we will eye spending through the coming months for signs that the positivity in sentiment is coming through in the hard data. The core PCE price index – which is the Fed’s preferred measure of inflation – fell 0.2% from February to March, the first decline in over a year and the largest drop since January 2015.

The miss in the US data was met halfway across the globe in China, where manufacturing PMI stepped back from a near 5-month high and services PMI hit a six-month low. While both were still in expansionary territory, it brings into question whether the recent optimism to the global growth outlook is in fact justified. Business confidence has waned, hurting employment and new export orders across sectors. The Aussie dollar remains surprisingly firm amidst the doom-and-gloom in China. Supported by firmer commodity prices and the miss in US data, AUD is up almost 0.7% against the USD. The RBA meeting and Governor Lowe’s speech on Tuesday will likely determine AUD’s track through the rest of the week.

The French will take to the polls for a second round of voting on a president next Sunday, but those betting on a more tempered Marine Le Pen will be disappointed. Speculation that the far-right candidate would moderate her stance to attract a wider breadth of voters was stamped out this morning when Le Pen said she would begin negotiations leaving the single currency immediately if elected.

EURUSD: Euro higher on weaker US data. GDP growth on Wednesday, PMIs and Draghi’s speech Thursday will be euro-drivers.

GBPUSD: Cable is mixed this morning an could remain in a standstill with little data out of London and Parliament dissolving Wednesday to prepare for the snap elections in early June.

AUDUSD: Aussie dollar higher despite the miss in Chinese data overnight. All eyes on RBA Governor Lowe who is set to speak Tuesday.

USDCAD: The loonie is flat against the greenback as weak US data is offset by lower oil prices.

USDJPY: After an initial tumble when the US avoided a government shutdown, the has regained losses to trade higher on soft US data.