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A 2nd House Vote on Tax Reforms to Influence the Dollar

Bob Mason
U.S Dollar weakness continues to be the theme going into the New Year, with the markets getting their first set of stats for some time, ahead of this week’s nonfarm payroll and wage growth figures out of the U.S.

Earlier in the Day:

Economic data out of the Asian session this morning was limited to New Zealand data, providing further direction for the struggling Kiwi Dollar.

Stats included 3rd quarter current account figures, together with November’s trade data. It was negative all the way on the data, with New Zealand’s trade deficit widening from NZ$2,970m to NZ$3,440m year-on-year. Month-on-month, the trade deficit widened from NZ$843m to NZ$1,193m, which was far worse than a forecasted narrowing to NZ$550m.

November imports stood at NZ$5.8bn, rising above October’s record $5.4bn, with imports rising by $1.2bn (27%) from November 2016. The yearly increase was the largest rise in imports since December 1999, when imports had surged by 62%. The increase in imports was attributed to the import of aircrafts and aircraft parts, motor vehicles, computers and diggers.

Exports rose by 20% to $4.6bn, which was a new November high and the largest percentage increase since January 2014. The increase in exports by value was attributed to milk powder, butter and cheese, with butter prices up a staggering 82%.

New Zealand’s current account deficit narrowed in the 3rd quarter from NZ$7.49bn to NZ$7.1bn, year-on-year, whilst falling short of a forecasted narrowing to NZ$6.9bn.

The Kiwi Dollar moved from $0.69876 to $0.69723 upon release of the data, with the Kiwi Dollar down 0.20% to $0.6958 at the time of writing, the soft numbers coming off the back of a 3.9% fall in the NZ GlobalDairy Trade Price Index according to figures released on Monday.

There was little else for the markets to consider through the Asian session, with the U.S equity markets having closed out the day in the red on Monday, following the House voting in favour of the tax reform bill. In the Asian equity markets, the ASX200 was leading the way at the time of writing, up 0.18% as the markets hit the pause button on news hitting the wires that the House will need to revote on the tax reform bill this afternoon.

Despite the tax reform bill’s procedural error, the Yen was down 0.1% to ¥113 against the Dollar, with the Aussie Dollar down 0.07% to $0.7658.

The Day Ahead:

It’s a relatively quiet European session, with stats out of the Eurozone limited to Germany’s November wholesale price index figures. We won’t expect the numbers to have too much of an impact on the EUR, with forecasts pointing to wholesale price inflation rising at a slower pace last month.

The EUR’s made good ground this week against the Dollar, in spite of Chancellor Merkel continued struggles to form government following the September general election. At the time of writing, the EUR was up just 0.01% to $1.1841, with direction through the day likely to be hinged on market risk appetite and progress on the tax reform bill.

For the Pound, following a quiet Monday, things could get a little more interesting this afternoon, with Bank of England Governor Carney scheduled to speak. Focus has been on Brexit talks, following last week’s in line with expectation monetary policy decision. Any talk of rate hikes could see the Pound break back into $1.34 levels, though as we have seen in recent weeks, how the UK government progresses in Brussels will ultimately be key for the Pound.

At the time of writing, the Pound was up 0.05% at $1.3392, with the Pound range bound through the Asian session

Across the Pond, stats out of the U.S are limited to November’s existing home sales figures that are likely to have a muted impact on the Dollar ahead of the House’s 2nd vote on the tax reform bill. The markets don’t like surprises and the procedural error left the Dollar on the back foot at the start of the week.

The markets will be looking for the bill to land on Trump’s desk before the end of the week, so both the House and the Senate will need to give the nod today. While focus will be on the progress of the tax reform bill, there will also be the need for a further extension on funding to avert a government shutdown on Friday. Reports suggest that the government will be looking for a 2nd extension through to 19th January.

At the time of writing, the Dollar Spot Index was up 0.01% at 93.459, with the Dollar expected to get a boost from a passing of the tax reform bill and upbeat housing sector data.

This article was originally posted on FX Empire