Tax Reforms to Drive the USD, with the GBP and EUR also in Focus

Earlier in the Day:

The Aussie Dollar was back under the microscope in the Asian session today, with October employment numbers being rolled out. Following Wednesday’s disappointing wage growth figures and falling commodity prices, there’s been very little support for the Aussie Dollar at present. When you consider market sentiment towards the Chinese economy and an expected slowdown, it’s looking particularly bearish and the RBA’s unlikely to be making any moves any time soon.
This morning’s figures provided some much needed respite for the Aussie Dollar however, with the Aussie Dollar moving from $0.75841 to $0.76036 upon release of the numbers. Australia’s unemployment rate fell from 5.5% to 5.4%, a four-and-a-half year low, with the labour market adding 24.3k full time jobs in October. The negative was a softer than forecasted increase in all employment, which was attributed to a 20.7k fall in part-time employment in the month. Despite the decline in part-time employment, a fall in the participation rate assured a better than expected unemployment rate.

At the time of writing, the Aussie Dollar stood a $0.7595, up 0.08% through the session.

While there were no other material stats released through the Asian session, the Asian major indexes managed to shake off the recent negative sentiment today. The Nikkei rallied 1.62% to eat into its current week’s losses, with the ASX200 closing the day up 0.16%. The Hang Seng and CSI300 were also in positive territory at the time of writing, the gains coming in spite of the concerns over China’s economy. Tencent’s earnings, which were released after the Hang Seng’s close on Wednesday contributed to the Hang Seng’s gains this morning.

The Day Ahead:

It’s a busy day ahead and for the EUR, key macroeconomic data scheduled for release this morning includes October’s finalized inflation figures. It’s been a strong week thus far, with the EUR finding support from the German GDP numbers released on Tuesday and the pullback in risk appetite that leads to carry trade unwinds.

Focus will be on the core inflation figures, which have continued to fall well short of the ECB’s target. ECB President Draghi had recently said that he expected inflationary pressures to begin building, but to date there has been little evidence in spite of rising oil prices.

We won’t expect the data to have a material impact on the outlook for monetary policy just yet, but the EUR will certainly find some direction off the figures, particularly following a relatively uneventful Wednesday. Outside of the data, ECB President Draghi is scheduled to speak, any comments on monetary policy are not expected to be EUR positive judging by the ECB’s desire to maintain a softer EUR. Draghi has surprised the markets on numerous occasions however, so he will need to be watched closely.

Interestingly, outside of the data, there’s been relatively little noise over Merkel’s troubles in forming a three party coalition with the FDP and the Greens. There have been rumours that a Friday deadline has been set on ironing out differences over Germany’s relationship with the Europe, the Greens being pro-Europe, while the FDP are considered Eurosceptic. There may be some jitters should negative news begin to hit the wires and threats of a re-election become more than a possibility. With Merkel having come in 2nd in the state elections, the real threat is Merkel’s CDU coming in 2nd.

At the time of writing, the EUR was up 0.02% at $1.1793, as the markets look ahead to stats and events through the day.

For the Pound, it’s another important day from a data perspective. October retail sales are scheduled for release this morning. If the forecasts are anything to go by, it’s doesn’t look too good for the Pound, which has managed to stand its ground in the wake of Monday’s decline. October’s BRC Retail Sales Monitor that was released last week was also a disappointment. The gap between wage growth and inflation may have narrowed in October, but it may well take some time for consumers to loosen the purse strings. The economy may have continued to perform through the year, but Theresa May’s instability and uncertainty over Brexit remain an influence.

British politics and Brexit continue to be two key negatives for the Pound and until Theresa May is able to steady the Tory Party ship, the possibility of a vote of no confidence and another General Election remain.

At the time of writing, the Pound was up 0.11% against the Dollar at $1.3182, holding on to Wednesday’s gains, though we can expect the Pound to be under pressure ahead of the stats. Outside of the stats, there are a number of BoE speeches scheduled this afternoon, with BoE Governor Mark Carney and MPC members Broadbent and Cunliffe speaking. Any monetary policy talk will provide further direction for the Pound late in the European session. With inflation the BoE’s major concern, there’s no real need for any of the speakers to be talking down the Pound…

For the Dollar, it’s another day of wait-and-see. The equity markets have run out of patience, but the Dollar has managed to hold up in the face of adversity. It’s all about the tax reforms and apparent lack of progress and the markets will be looking for some news later today on whether the Republican standoff continues. News hit the wires late in the U.S session on Wednesday that Republican Sen. Ron Johnson would not be voting for the Bill. Any more Senators coming forward will be a negative for the Dollar ahead of Today’s House vote, which is anticipated to be in favour of the Bill and the Dollar.

While focus will be on Capitol Hill, economic data out of the U.S will be a factor to consider. Key stats due out this afternoon include the weekly jobless claims figures, October Industrial production and import and export price figures and the Philly FED Manufacturing PMI for November. While the stats will provide some direction, none of the data is likely to have a material influence on market sentiment towards next month’s interest rate decision.

October’s inflation figures, released on Wednesday, we’re considered good enough for a December rate hike, with FOMC member Rosengren and Harker having been hawkish this week. Members Mester and Kaplan are due to speak through the U.S session today and if the pair are of a similar view, then the Dollar will find some support.

At the time of the report, the Dollar Spot index was up 0.04% at 93.851, with plenty for the markets to consider through the day.