Summary:

• US Senate approves the US tax bill seen as the most sweeping overhaul of the country’s tax code
• The bill must go back to the House for final voting while smooth approval is expected
• NZ dollar lower on the day due to weak results of the GDT auction and trade data

The US dollar was barely changed during the past hours even as the US Senate approved the tax bill seen as the most sweeping shake-up of the US tax system in more than thirty years. The whole voting process was presided by Vice-President Mike Pence who announced finally “on this vote ayes are 51, the nays are 48. The Tax Cuts and Jobs Act is passed”. Passage of the bill in the chamber where Republicans hold just a slim majority seems to have been a turning point for the entire legislative process. Nevertheless, now it’s GOP’s turn to make final approval as the bill must go back to the House on Wednesday due to a procedural issue known as a “Byrd Bath” where legislation undergoes a review to make sure it complies with the so-called Byrd rule. Once all goes as expected, it would be the first major legislative triumph since President Donald Trump took office almost a year ago.

However, from a financial markets’ point of view there has been little to cheer so far as the US dollar has remained broadly untouched. On top of that, the US stock markets ended the session with moderate losses even though passage of the bill had been anticipated. On the flip side we had quite an impressive move across the US bond market where the 10Y yield grew around 7bps during the yesterday’s session reaching its top at 2.47% – the highest since the end of October. In turn looking through the FX market one may notice that the EURUSD has already approached its pivotal resistance zone placed nearby 1.1850 from where more sellers could lurk. Having assumed that the tax bill will be approved by the House ultimately, it could be a good reason for USD bulls to take control on the market anew.

The EURUSD has run into a notable resistance at around 1.1850 thus a resumption of a downward trend could be on the cards. Source: xStation5

Apart from the US tax bill it’s worth mentioning the NZ dollar as traders await the Q3 GDP release scheduled for this evening (BST). While the losses have not been so heavy, the NZD is among the weakest currencies in the G10 basket at the time of writing. Weakness began on the back of fairly a substantial decline of whole milk powder prices during the last GDT auction this year. Afterwards, the NZ dollar got another blow from the domestic economy this time round. November’s trade balance saw a huge 1193 million NZD shortage while just -550 million NZD had been forecast. It stemmed mainly from an impressive pick-up in imports which grew 5.82 billion NZD against the consensus at 5.1 billion NZD. On the other hand exports moved up just negligibly from 4.61 billion NZD to 4.63 billion NZD. 

NZ trade balance saw a significant decrease in November which was at odds with a seasonal pattern. Source: Bloomberg

The NZ dollar has fallen back of late due to the weaker than expected data. Technically the pair has already found itself in a crucial support area which could prevent deeper declines. Source: xStation5