NFP Could Be First Indication Of Growth Data In U.S.

The more robust employment data will boost spending forecasts for May and June. If this actuates in a significant upgrade in retail sales, it will be a massive pump to the markets given much of the recovery's heavy lifting will fall on the consumer. Indeed, based on the NFP data, it looks like the rebound in spending will be sooner and faster.
 
Currency Markets
 
With dollar depreciation well underway, it will be interesting to see how the market follows through on the sturdy US jobs report and whether it will throw the proverbial monkey wrench into the works over the short term. But unquestionably, the better than expected NFP will raise the level of intrigue into the FOMC meeting two folds as the better jobs data may give the Fed cause step away from a focus on crisis prevention towards more traditional goals. 
 
The market was expecting the NFP to confirm the textbook setup for anchoring a weaker USD bias. But the positive economic surprise could form the base to trigger a bit more bond selling, and USD/JPY buying on follow through.
 
However, last week FX  traded in full sympathy with risk sentiment. With equities consistently trading in the green (S&P YTD is down only ~1.2%), every currency in the G10 space apart from JPY and CHF was up vs. the USD.
 
So, while bearish US dollar activity could ease up a touch into the FOMC, but if it's still all systems go on the equity market front and since there should be nothing of note on the rate differential front from FOMC  that could significantly reverse this dollar sell-off. Based on the fact the currency markets are trading in concert with risk sentiment, more dollar weakness should remain the path of least resistance.  
 
Commodity Currencies
 
The Aussie dollar and the Canadian dollar will both benefit from positive risk sentiment and tighter oil balances after the constructive outcome from the weekend OPEC meeting. Indeed, happy oil markets make for buoyant currency markets. The impact of higher oil prices is leaving a profound effect on commodity-producing currencies. Persistent declines in implied US equity volatility against the backdrop of stabilizing oil prices are a powerful and sturdy combination.
 
AUD/USD rallied 5% last week and AUD/JPY nearly 7% in sympathy with the risk sentiment.
 
The Euro
 
The stream of positive news supporting the euro has not stopped this week, and the bullish sentiment remains.
 
But it is the marriage of monetary and fiscal policy, something that was absent in the Draghi regime that resonates.  In fact, It is a dream come true for the markets that have been waiting for an agreement on debt sharing since the advent of the single currency. Indeed, this is a big deal. 
 
The Yen 

Last week has marked the return of USD/JPY topside interest, after several weeks of persistent downside interest. The move higher in spot and the risk sentiment has spurred, at last, some topside interest in the second part of the week.
 
Asia FX 
 
Also, the global investor's insatiable chase for yield is helping Asia high yielders. USD/IDR has been heading south, and downward momentum has accelerated this week with record top subscriptions to Tuesday's bond auctions, signaling improving risk sentiment and inflows into high-yield local assets. BI's decision to keep the target rate on hold at its last meeting is also helping the move lower in the spot. 
 
USD/CNH finally traded lower to catch up with the broad dollar moves but is still lagging, and the CNH index has continued to weaken
 
The Ringgit should look good on several fronts this week, the positive outcome from OPEC aside. Having the weekend to digest the RM35 economic plan designed to cover " Main Streets" back, will be well received. With improving risk sentiment, equity, and currency market volatility decreasing, investors hunt for yield will have them checking out catch up trades across the region, where the MYR could benefit in the context of improving sentiment across regional peers. 
 
Gold markets
 
The gold market got summarily smacked post US payrolls report as defensively positioned investors found themselves positioned all wrong. Both stock and bond yields rose in conjunction as it was a risk on times two after Nonfarm payrolls unexpectedly rebounded by 2.5mn in May. The report could be the first indication that growth data in the US is set to turn more clearly positive in the coming weeks, in line with stock market pricing, which is factoring in rapid sequential growth. If more data surprises unfold, it likely would not be pleasant for gold investors.