Tax Reforms Places the Dollar Center Stage

Earlier in the Day:

Key stats through the Asian session today were limited to China’s October trade figures. Exports increased by 6.9% in Dollar terms year-on-year, falling short of a forecasted 8.8% increase, while imports rose by 17.2%, well ahead of a forecasted 13.5% increase. The U.S Dollar trade surplus widened from $28.61bn to $38.17bn.

Following Tuesday’s RBA Statement, the figures had little impact on the Aussie Dollar, which was flat at $0.7645 at the time of writing.

With no other stats for the markets to focus on, Trump’s visit to Asia was the main area of interest as was concerns over the prospects of tax reforms in the U.S., which weighed on the U.S Dollar through the session.

Sentiment towards U.S tax reforms are expected to be a key driver for the markets over the near-term and the lack of confidence was reflected in this morning’s pull back in the equity markets. Both the Hang Seng and CSI300 had enjoyed solid gains early in the session before retracing, with the Hang Seng in the red at the time of writing.

For the Nikkei, the bulls are certainly showing their horns, with many calling for the rally to continue and for the Nikkei to hit the dizzying heights of 30,000 in the next few years. Much will depend on how successfully Prime Minister Abe negotiates the much talked about trade agreement with the U.S and whether China growth will in fact slow towards the end of the year. Following Tuesday’s rally, the Nikkei spent the day in the red today, down 0.1% by the close.

The Day Ahead:

There are no material stats scheduled for release out of the Eurozone this morning, leaving the markets to consider what lies ahead for the Eurozone economy and monetary policy. As things stand, monetary policy divergence remains in favour of the Dollar, but with the hopes of tax reforms also priced in, it’s not all over for the EUR just yet.

At the time of writing, the EUR was flat at $1.1587, easing back from an intraday high $1.1606.

With no material stats out of the UK, Bank of England Governor Carney is scheduled to speak this morning. Carney is not expected to discuss monetary policy, but he has surprised the markets before, which could provide some direction. While monetary policy continues to be a consideration, the EU has been piling on the pressure.

Brexit news will be a factor for the markets to consider, with there being plenty of bad press of late on how Britain will progress.

Cable was down 0.06% to $1.3158 at the time of the report, the Pound giving up gains from earlier in the day.

Across the Pond, things are not much better for the Dollar. The Dollar Spot Index was down 0.08% at 94.833 at the time of the writing. Concerns over tax reforms weighed on the Dollar through the early part of the day as the market looks ahead to the floor vote next week. The general view is that the final reform bill will be in quite a different form to how it looks today and will likely be rolled out towards the end of the year.

With macroeconomic data having continued to support a December rate hike, focus will remain on Capitol Hill and growth policies, with any negative talk on tax reforms likely to weigh more heavily on the Dollar.