The news last weekend of the massive Trump climb down on Chinese tariffs buoyed the dollar, but the bump soon faded and the dollar ended the week down against all of its G10 peers and nearly all major currencies worldwide. The moves, however, were modest with the exception of the sharp rise in the Japanese Yen, the week's undisputed winner. Risk assets did celebrate the trade news, as well as the apparent muted impact of the tariff scare on the real economy so far. Stocks and credit continued the scorching rally of the last month. News of Moody's downgrade of the US sovereign credit rating hit after close on Friday, but appears to be having limited impact on markets so far in early Asian trading. Attention for now may shift away from the trade war and back onto macroeconomic and policy news.This week's docket in this direction is relatively light. The main focus worldwide will be the PMI indices of business sentiment for May, published in all major economic areas on Thursday. Given the apparent disconnect between sentiment and hard data, these may be taken with a grain of salt. The April inflation report out of the UK and a slate of second tier post-liberation day reports out of the US will round out the week.

AUD

A continued easing in US-China trade tensions and some strong domestic economic data suggest that risks to the Australian dollar remain skewed to the upside. Last week’s labour report for April was highly impressive. The unemployment rate was unchanged at 4.1%, while there was also a sharp upside surprise in job creation, which jumped by 89k last month - well above the +20k estimate and the largest monthly increase in employment since February last year. The Reserve Bank of Australia is widely expected to lower interest rates by another 25 basis points on Tuesday, but in light of the strength of the jobs market, and Australia’s admittedly light dependence on US demand, we expect the bank to strike a hawkish note. The rate setting committee may play down the economic implications of the tariffs, and indicate to markets that further cuts will likely take place at a measured pace in the coming months. This, we believe, would probably signal a pause at the following meeting in July and, at most, just two further rate reductions by the end of the year.

NZD

Market participants continue to favour another rate reduction from the RBNZ when it convenes next week (28/05), and nothing in the interim is likely to derail such a move. Yet, macroeconomic news out last week suggests that policymakers could hit a slightly less dovish note in the bank’s accompanying communications. The manufacturing PMI actually rose in April (to 53.9 from 53.2), despite the uncertainty created by the unveiling of US tariffs, while inflation expectations rose to their highest level in a year in Q4. Mostly second-tier economic news will be released in New Zealand this week. Trade balance data (Tuesday) and first quarter retail sales figures (Thursday) could grab the attention of investors, yet we suspect that global risk sentiment will be more important for NZD in the coming days.

USD

Retail sales for April were slightly weaker than expected, but do not change the picture of an economy that has proven more resilient to the tariff shock than expected. In particular, weekly jobless claims numbers continue to bounce around near the historical bottom, indicating that no significant layoffs have resulted and the US economy continues to cruise along at something very close to full employment. However, the enormous US fiscal deficit, without historical precedent at a time of full employment and likely to increase even further with the coming Republican tax cuts, may receive more attention in markets. The US government will need to find buyers for a veritable tsunami of fresh debt issuance precisely at a time where the world's appetite for such assets seems on the wane. The Moody's downgrade may bring this unbalance into sharp focus.

CNY

In what feels like a long time but was just over a month, USD/CNY has returned to levels from before the infamous ‘Liberation Day’. US-China talks in Geneva appear to have yielded some progress in the rocky relationship, which could help the yuan attract bids in the near term. Other newsflow from China has also been encouraging of late. Trade data at the beginning of Q2 was much stronger than expected, with exports growing by 8.1% YoY as shipments to Southeast Asia made up for the losses in trade with the US. China also announced a series of stimulative actions to support the economy, including lowering rates and RRR reduction, as well as targeted measures. Moving forward, markets should first and foremost digest the US-China trade talks with other news likely in the background for now.