USD: Just a little setback for US tax reform? – Westpac
|Sean Callow, Research Analyst at Westpac, notes that the US dollar has taken a step back against most G10 currencies this week, though it doesn’t look like a major turning point.
Key Quotes
“Yield support peaked in the wake of the Sep employment report, which included a 4.2% unemployment rate, the lowest since Feb 2001. The 2.40% area on the 10 year Treasury note has proven to be a stubborn ceiling since March.”
“So it proved again on Friday, with little more than unconfirmed news reports of North Korean missile preparations prompting the 10 year yield to roll over, dragging the US dollar with it. Arguably more substantive in undermining US yields and the dollar this week was the war of words between President Trump and Senator Corker. Trump mocked Corker’s height (“Liddle Bob”) and called him a fool, while Corker said the White House had become “become an adult day care center.”
“Corker is of course from the same party as the president and is chairman of the Senate foreign relations committee. The president cannot afford to alienate many Republican senators if he is to pass major legislation in the months ahead. The tax plan that markets eagerly want to see passed faces many hurdles aside from growing personal tensions with the Senate.”
“Still, the administration will continue to pursue some version of tax reform that should include lower corporate taxes and a USD-positive tax break on repatriated profits. Moreover, Fed officials have been clearly upbeat on the growth outlook and the case for higher rates, so near term pressure on USD should be limited.”
“EUR was strongest over the week, with Catalonian independence looking less likely, sparking a rebound in Spanish stocks and bonds. AUD and NZD underperformed, with soft iron ore prices and positioning a headwind for AUD, while election uncertainty lingers on NZD.”
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