The economic calendar is light this week but the focus is on China
If last week was all about the Fed, the week ahead is about China and emerging markets. The US dollar has rebounded after early selling pressure.
All the talk in markets at the moment is about the China manufacturing PMI from HSBC. It's due at 0145 GMT (9:45 pm ET) and expected to slip to 50.5 from 50.7.
China manufacturing PMI from HSBC
On the weekend, PBOC leader Zhou said: "If we adopt excessively loose monetary policy, it will not be favorable for structural reforms." It's a hint that even softer economic data might not lead to a cut in the RRR.
The market is also closely watching this data point because it's one of the first numbers for March. In February, some economic data (especially trade) was extremely weak but most market watchers believe it was skewed due to the effects of Lunar New Year holidays.
For broader markets, the numbers could quickly change the conversation. The Fed is unimpressed by the US economy, noting that it has 'moderated' in the most recent period. There is little doubt the global economy has also moderated but most of the downside rests in emerging markets. On the weekend, Pakistan cut interest rates and there is no sign of any acceleration in China.
A soft reading, combined with diminished hopes of rate cuts from China, could put significant downside pressure on AUD/USD. The market dramatically cut AUD shorts ahead of the FOMC but traders could be looking to re-establish positions with the pair nearing resistance in the 0.7860 to 0.7914 range.