Another Day, Another Dollar and Another Day of Tax Reform Talk

Earlier in the Day:

It was a busy day on the data front through the Asian session this morning, with key stats including manufacturing data out of Australia, household spending and inflation numbers out of Japan and China’s Caixin manufacturing PMI.

It was a mixed session for the Aussie Dollar, with Australia’s manufacturing index surging from 51.1 to 57.3 in November, whilst China’s Caixin manufacturing PMI reported a slower pace of growth in the sector. The numbers were not bad enough to create panic, but were in contrast to the government numbers released on Thursday. With plenty of concern over the Chinese economy, as the government looks to crack down on ballooning debt and reduce pollution emissions, the numbers suggest that work is already underway. Weaker new orders could spell trouble going into the New Year, if orders don’t bounce back next month.

At the time of writing, the Aussie Dollar was up just 0.03% at $0.7568. The gains were limited with the Aussie Dollar feeling the pressure of the softer numbers out of China. Over the near-term, it’s going to be down to the RBA’s tone in next week’s monetary policy meeting and whether the macroeconomic data impresses, with GDP, retail sales and trade figures amongst the stats also scheduled for next week.

For the Yen, it was a relatively uneventful session, with inflation numbers doing little to suggest that the BoJ would shift on its monetary policy outlook, even though there was a slight uptick in core inflation in October from 0.7% to 0.8%. That’s still well short of the BoJ’s objective and, with Abenomics intact, the challenge will be to drive wage growth.

At the time of writing the Yen was down 0.07% at ¥112.62 against the Dollar, with another day of declines for the Hang Seng and CSI300 doing little to drive demand for the safe havens.

The Nikkei and ASX managed to close out the day in positive territory, with the big-4 banks on the ASX in positive territory following Thursday’s slide.

The Day Ahead:

For the EUR, it’s back to the dizzy heights of $1.19 and all of this in spite of some upbeat economic data out of the U.S and albeit slow progress on tax reforms.

While the ECB is looking to continue to peg back the EUR in support of an export driven economy, members of the ECB have been particularly bullish on the Eurozone economy. The bullish sentiment does suggest that we could see more than a tapering to the asset purchasing program next year, if economic momentum continues. The latest private sector PMI numbers certainly suggested that the economy is in a good place and that’s supporting the EUR.

Economic data out of the Eurozone this morning is limited to November’s finalized manufacturing PMI numbers that could solidify the EUR’s levels going into the weekend. It was a solid month for the EUR in November and it could be more of the same through December.

At the time of writing, the EUR was up 0.15% at $1.1922, with the data and Merkel’s progress with the SDPs likely to be key for the EUR.

Across La Manche, while the EUR’s gains have been impressive, the Pound’s not done too badly either, going into the final month of the year.

There were no material stats out of the UK on Thursday, with the Pound’s recapturing of the $1.35 handle coming off the back of a new found optimism over Britain’s departure from the EU. It’s not just been down to the Pound however, with economic data out of the U.S failing to impress on Thursday.

Economic data out of the UK is limited to November’s manufacturing PMI this morning, which is forecasted to be Pound positive. Solid stats today and continued optimism over Brexit talks are certainly a fine recipe for the Sterling bulls over the near-term, while economic headwinds continue to linger over the longer-term. Inflation has likely inflicted some damage to the economy that is being reflected in the downward revisions to growth numbers over the short to medium-term. While Brexit has ultimately been the root cause of the Pound’s demise, an economic meltdown won’t be an environment within which the Pound will be able to flourish.

At the time of writing, the Pound stood at $1.3528, up 0.02% for the day.

Across the Pond, the tax reform bill pendulum continues to swing, with revisions having to be made to the bill late on Thursday as Republicans were forced to address concerns over the impact of tax reforms on the fiscal deficit. Despite claims that the reforms would pay for itself, it was revealed that the government would lose close to $1tn in revenues over the 10-year period.
For the Dollar and the administration another setback, but this time around there seems to be more support than with the Obamacare repeal. There are hopes that a vote will be taken later this evening, though how much of this is already baked into the Dollar remains to be seen, talks of tax cuts now having been high on the list of key drivers for some weeks now.

On the data front, November’s manufacturing PMI numbers are scheduled for release, with the ISM survey numbers of greater influence. FOMC members are also slated to speak, with members Kaplan, Harker and Bullard talking through the afternoon. December’s move remains a foregone conclusion for the markets, so any support for the Dollar would come from more hawkish sentiment towards the rate path for next year.

At the time of writing, the Dollar Spot Index was down 0.14% at 92.913 with tax reforms and sentiment towards the U.S administration in general being the negatives for the Dollar.