Dollar Crawls Back Yesterday's Losses; Tax Reform Next Up

 

USD

After taking a beating yesterday against its European counterparts, the U.S. dollar is on the front foot across the board this morning. With no major data slated for release today, traders across all markets are eagerly awaiting the details of President Trump proposed tax reform. The tax plan is expected to include a 20 percentage point reduction in the federal corporate tax rate to 15%. In addition, it is expected Trump will propose a one-time 10% tax on more than $2.6 trillion of U.S. companies’ offshore earnings. Reactions to the plan are likely to be vast including optimism for U.S. equities and grave concerns for an explosion of the debt.

We are also keeping a keen eye on other developments in Washington this week. A deal to keep the government from shutting down is still not complete although it now appears more likely after President Trump dropped his demands for the deal to include funding for the border wall.

 

EUR

The Euro took a breather from its rally overnight but remains at elevate levels versus the U.S. dollar. The Euro’s advance appears to be held in check as the currency’s momentum has been unable to break into higher technical levels. Recent French election polls show that that the centrist candidate, Emmanuel Macron, is expected to win by 20 percentage points. Therefore, the Euro is seeing very little in the way of political risk.

Attention will now shift tomorrow’s European Central Bank decision. While no change in policy is expected, some expect the central bank to take a more hawkish stance towards future policy. However, it is likely that ECB head Mario Draghi will try to tamp down expectation of future monetary tightening. Either way, volatility is likely.

 

AUD

The Australian dollar dropped and took the New Zealand dollar down with it as inflation data missed estimates. Aussie headline CPI rose 2.1% y/y v. estimates of 2.2%. Future consumer prices are were also lower and missed forecasts. The Aussie is not at its lowest level in a week against the greenback.