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  • Forex on Friday was centred around U.S. data and a mixed GDP report which made for good two-way business in the greenback.

Markets in early Asia are starting out quiet with no significant data releases immediately. For the most part, traders will be digesting the latest piece of economic data that arrived on Friday for the US in the form of Q1 GDP that beat market expectations, rising by 3.2% (following an increase of 2.2% in the previous quarter). However, while the initial headline supported positive flows into the greenback, on the second take, when scrutinising the finer details.

Despite the upside surprise on government spending, final domestic demand (i.e. GDP excluding trade and inventories) grew just 1.5% annualized, the weakest since 2015 and the growth gap between real GDP and final domestic demand in Q1 was the largest in six years – The last time there was such a gap was in 2013 Q1, a quarter that was then followed by a slump in growth which had the doves calling for a Fed rate cut, weighing on the greenback. Indeed, US Treasuries were quick to fade the knee-jerk move as concerns regarding slowing inflation kept the potential rate cuts alive in the US – The US 10-year note’s yield ended down 3.4bps at 2.496% after the feeding frenzy settled down. The DXY ranged between the post headline high of 98.33 and 97.85 post number low, settling NY at 98 the figure again.  

Currency action:

As for currencies, analysts at Westpac gave a summary of the G10 space’s stand outprice action:

  • EUR/USD rose from 1.1120 to 1.1170 following the US GDP data.
  • USD/JPY fell from 111.80 to 111.43.
  • AUD rose from 0.7030 to 0.7061, but retraced later in the NY session to 0.7040, where it starts the week.
  • Outperformer NZD similarly rose from 0.6640 to 0.6682 before retracing.
  • AUD/NZD slipped from 1.0580 to 1.0560 – a two-week low.

Key notes from the U.S. session and weekend press:

  • Weekend Press: A big week of insights ahead
  • Wall Street ends in the green but DJIA bulls not out of the bear’s woods yet, (down 0.1% for the week)

The week ahead:

All eyes will be on China’s PMI on Tuesday for signs of a continued rebound in manufacturing activity. Then, attention turns to the U.S. for ISM manufacturing, FOMC rate decision and nonfarm payrolls.  

Analysts at ANZ offered their outlook on the FOMC this week:

“This week’s FOMC meeting will, once again, garner plenty of market attention. A consistent improvement in the US data pulse of late has led many commentators to reduce the odds of future rate cuts in the US. That said, a benign inflation backdrop has allowed many to maintain their arguments for future rate cuts. Current pricing suggests that the market is not expecting the Fed to move its policy rate at this week’s meeting but the tone and comments of the upcoming statement will be important. The market will be eager to hear the Fed’s assessment of current economic backdrop where domestic growth is strong but inflation continues to slow.”