USD: Busy bees in Washington DC
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. It largely ignores the President’s desire to prioritize things like building his border wall, but the quick and easy resolution will calm the nerves of investors who were worried that political derision in Washington would force Congress into an impasse.
Investors are eyeing two key data points for the US this week: 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.
EUR: Draghi’s dovishness to be challenged?
A shortened trading week for European markets as Labour Day is being observed on Monday. Tuesday we’ll have employment figures from Germany, GDP growth on Wednesday for the Euro Area, and Thursday President Mario Draghi will speak alongside two other ECB members scheduled. Draghi has committed himself to particularly dovish commentary on the outlook for inflation, a stance that could be questioned after the last reading of core inflation beat expectations, leaving euro vulnerable to move higher if Draghi obliges the hawks.
The economic developments in Europe continue to be tempered by political ones. Those who were betting on a more tempered Marine Le Pen had another thing coming as we saw early Monday morning. Some were speculating that the far-right candidate would move to a more moderate stance to attract a wider breadth of voters, but Le Pen is sticking to her guns. She said that if elected, she would begin negotiations to leave the euro straightaway.
GBP: May vies for the upper hand
A slow week ahead for sterling and parliament is due to dissolve on Wednesday ahead of Theresa May’s snap elections on June 8th. Aiming to score a higher majority for her conservative party in the House of Commons, investors are confident that she will succeed, given the appreciation of the pound following the announcement just after the Easter holiday.
A greater majority will not only give her greater support in Brexit negotiations, but by calling elections two years early, anyone in Parliament now will also serve a four year term spanning the two-year negotiating period with the EU and two years after to ensure a smooth implementation.
CAD: Tariffs weigh on trade
Outside of following oil prices, the Canadian dollar will pay attention to trade rhetoric from the Unites States. President Trump’s commitment to renegotiating NAFTA rather than scrapping it should have been a positive catalyst for CAD, but it was overshadowed by Trump’s tariff on softwood lumber. Softwoods are substantially subsidized by the Canadian government which keeps prices artificially low, a practice Trump is trying to stamp out by imposing a new tariff on their import into the US.
JPY: Risk can go both ways
Domestic events in Japan are likely to cave to wider trends in risk appetite once again. Riding the wave of expectations for the French election into the weekend will be key – investors are skewed towards expectations for the centrist candidate Emmanuel Macron to win the second, and final round against the far-right contender Marine Le Pen. Alongside this set date, continued tensions surrounding North Korea can easily tip the scales into a risk on / risk off trading.
AUD: No news is good news?
The Reserve Bank of Australia meets Tuesday, but not many waves expected on the policy front. Most investors are betting that they will hold their benchmark 1.5% interest rate for the 10th consecutive meeting. This will direct attention to the RBA Governor Lowe’s speech following the rate decision.
Outside of this, the Aussie dollar will remain vulnerable to wider developments on the geopolitical front which could move trading into risk-driven positions.