US tax reforms could send USD exchange rates higher

Philip McHugh December 19th 2017 - 2 minute read

  • US dollar could climb if Congress passes tax reforms
  • Eurozone inflation concerns weigh on euro
  • Rising dairy prices could support NZD  

US tax reforms expected to move forward

With the US Senate having voted to pass the republican tax bill over the weekend, all eyes will be on Congress and whether it will also back the bill.

Should the bill pass through Congress, which some observers suggest could happen within the first half of the week, it’s hoped that the President would then sign the tax cuts into law before Christmas.

The tax reforms are one of the most eagerly anticipated election promises from Trump as there are hopes that considerable corporate tax cuts will help boost growth in the US.

However, investors are torn over whether the tax cuts will actually pass through unimpeded this week after facing numerous roadblocks over the last few months.

One particular concern that threatens to derail the tax bill at the eleventh hour is a possible shutdown of the US government, with a new budget needing to be agreed upon by the 22nd.

Whatever the outcome, a relatively quiet week for US data is likely to ensure that the tax bill remain a key focus for USD investors this week.

Eurozone wage growth to rise?

The Eurozone will release its latest wage growth figures later this morning, with an expected uptick in average earnings likely to lift the euro.

Economists currently forecast that wage growth will have risen from 2% to 2.1% in the third quarter, with the uptick prompting wage growth to reach its highest levels since the first quarter of 2015.

With inflation currently sitting at just 1.5%, this suggests that spending power for consumers in the Eurozone continues to increase, something which should bode well for the Eurozone economy.

Uptick in dairy prices could lift NZD

The New Zealand Dollar may strengthen later this afternoon if prices rise again at the latest global diary auction.

NZD investors are hopeful that today’s auction will see dairy prices build on the 0.4% rise seen at the start of December, something which should help to bolster the ‘Kiwi’ given that dairy products account for over 20% of New Zealand’s exports.

However, some observers predict that any further rise is likely to be modest as rising global supply levels has lead to demand dropping off in recent months, with the rise at the last auction likely to be more of a correction than a new uptrend.

Upcoming Data

Tuesday, 19th December 2017

09:00               EUR Business Climate
13:30               USD Current Account
15:30               NZD Global Dairy Auction

Written by
Philip McHugh

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