Forex Market Review (European Session) – Tax reform worries hold back dollar bulls; kiwi eyed ahead of RBNZ meeting

Forex Market Review (European Session) – Tax reform worries hold back dollar bulls; kiwi eyed ahead of RBNZ meeting

In the absence of important data releases, the US tax story remained front and center during today’s European session trading. Housing data out of Canada did gather some attention. The Energy Information Administration’s (EIA) weekly report out of the US, which is due later in the day, has the capacity to generate some movement in oil prices.

The dollar’s index against a basket of currencies was down by 0.1% at 1503 GMT with the US currency’s advance being halted over talk of a possible delay in the implementation of tax reforms. The greenback was on the rise as the tax story was gaining momentum with the dollar index recording a three-and-a-half-month high of 95.15 in late October. It yesterday came extremely close to revisiting the aforementioned peak. However, a Washington Post article, citing unidentified sources, indicated that Senate Republicans are contemplating on a one-year delay in the implementation of major tax cuts in order to comply with Senate rules. The report said a repeal of deductions for state and local taxes is also under consideration. This dented forex market participants’ appetite to go long the dollar.

Versus the yen, the dollar was down by 0.4%, falling to 113.38 at its lowest, this being an eight-day low. A pullback in Treasury yields also made the dollar less attractive. Indicatively, the US 10-year note today hit 2.30%, its lowest in almost three weeks. Euro/dollar was 0.1% higher, eyeing the 1.16 handle. Yesterday the pair touched 1.1552, a level not experienced since July 20. The dollar was stronger relative to sterling with pound/dollar being 0.55% down at 1.3093.

The US president’s Asia tour continues. Today he is in China with trade and North Korea expected to be on the table as he meets with his Chinese counterpart Xi Jinping. Trump yesterday urged nations to deny aid and assistance to North Korea while he today called out by name China and Russia, saying that all responsible nations should deny Kim Jong Un’s regime any form of support.

A Wall Street Journal poll released yesterday showed Donald Trump’s approval rating declining, with the fall being evident even in counties that had supported him during last year’s election.

Canadian seasonally adjusted housing starts stood at 222.8k in October, above expectations of 210.0k and September’s upwardly revised 219.3k (from 217.1k). September building permits data released a few minutes later showed the value of permits rising by 3.8% m/m, exceeding forecasts for a contraction by 0.2%. This marks the first increase in the value of building permits in three months and came on the back of strength in the non-residential sector as permits in Canada’s residential sector declined. The previous month’s fall in the value of permits was revised to 5.1% m/m from 5.5%. The loonie was gaining today relative to the greenback even before the data releases. The currency was supported after some comments made yesterday by Bank of Canada Governor Stephen Poloz were perceived as less dovish than expected by market participants. Dollar/loonie last stood at 1.2727, down 0.35% on the day.

Ahead of the completion of the Reserve Bank of Zealand’s meeting on monetary policy kiwi/dollar was trading 0.4% up on the day at 0.6928. The central bank’s decision on interest rates as well as its monetary policy statement are due at 2000 GMT. The RBNZ is expected to hold its official cash rate at the record low of 1.75%. Talk of a dual central bank mandate, where beyond price stability, full-employment is an objective as well, is also in focus.

In commodities, gold stood 0.65% higher on the day and not far below the near three-week high of $1285.80 an ounce recorded earlier in the day. The dollar-denominated metal benefitted as the greenback’s advance stalled but also potentially on Trump’s North Korean rhetoric which might refuel tensions – gold has a safe-haven allure. WTI and Brent crude were down by 0.65% and 0.7% at $56.83 and $63.24 a barrel respectively, easing a bit from the more than two-year highs reached the day before. The EIA weekly data for the week ending November 3 are due at 1530 GMT. The report is expected to show a reduction in crude oil inventories by 2.88 million barrels.

Source: Trade Forex with XM.

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