US tax legislation was the main headline during today’s Asian session after the US Senate flagged a delay in corporate tax cuts on Thursday, pushing the dollar lower against its counterparts. Meanwhile, the aussie posted moderate losses after the RBA downgraded its forecasts on inflation.
While the US President continues his trip in Asia, his team back in the US faces increasing obstacles to turn the promised massive tax cuts – that could be Trump’s first major legislative achievement since he took the presidential role in January – into law. Late on Thursday, the tax plans submitted by the Senate and the House of Representatives agreed to reduce corporate taxes to 20% from the current 35%, but disagreements were observed in key areas, including the time of implementation. The Senate version signalled that it would like to put its plan forward in 2019, contradicting the House bill (due to be voted next week) which plans to implement the legislation a year earlier. Moreover, the Senate increased the value of exemption of estate taxes, which mostly has to do with wealthy individuals and removed the deductibility of state and local taxes, something that could raise opposition among House lawmakers.
The dollar index retreated to a one week low of 94.41 on Thursday during US trading hours before edging up to 94.53 on Friday. Dollar/yen touched a ten-day low of 113.08 and continued fluctuating around that level in Asia. Dollar-denominated gold hit a three-week high of $1,288.38 per ounce.
In Australia, the RBA revised down its GDP growth and core inflation outlook in its quarterly statement on monetary policy released early today. According to the statement, the RBA policymakers expect core inflation to reach the low band of the 2-3% target in early 2019 as they consider that wage growth might rise only gradually despite a tightening labour market, hinting that a rate hike might take longer to emerge. Last August, the central bank predicted that inflation would reach 2% in the second semester of this year. Furthermore, the central bank reduced its growth forecasts to 2.75% in the mid-2018 from an earlier prediction of 3.0%. Regarding, household spending, it is expected to grow at a slower pace than before the 2008 financial crisis as consumers’ incomes suffer from overloaded debt obligations.
The aussie posted short-lived losses following the release of the RBA statement, rebounding immediately on the back of a broadly weaker dollar. Aussie/dollar was last at $0.7678 (0.03% down on the day).
The kiwi went down by 0.17% to $0.6936, pressured by remarks delivered on Friday by New Zealand’s Finance Minister, Grant Robertson. Robertson claimed that the successor of the central bank’s governor must agree on the new government’s plan to target employment and any opposition on this would put his role in question. The current RBNZ Governor, Grant Spencer, will be stepping down in March.
In the UK, Prime Minister Theresa May announced her determination to set an official date and time for the nation’s departure from the EU at 2300GMT on 29 March 2019. According to the Brexit Secretary, David Davis this would weep confusion on what an “exit date means”. The piece of legislation has passed to the committee stage which will start next week. Pound/dollar was mainly flat around $1.3138 during the session.
The euro was moving sideways around $1.1632.
Next on the day, traders will focus on the industrial production figures out of the UK and on the Michigan consumer sentiment readings out of the US.