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AUD fails to capitalise on Greenback softness as U.S tax reform disappoints investors

BY MATT RICHARDSON

The Australian Dollar opens lower against the Greenback this morning unable to hold above the 75c handle on the back of weaker than expected Australian inflation data yesterday. The annual rate of inflation rose to 2.1% in Q1 of 2017, from 1.5% in Q4 of 2016, the first print above 2% in 2 ½ years. However, underlying inflation stood at a quarterly rate of 0.4% and at an annual pace of 1.8%, still below the RBA’s target band. With job growth and wage growth slow but house prices are still increasing it is unlikely the RBA will look at raising rates in the near future. The Aussie moved from highs of 0.7552 to an eventual low of 0.7454 a level not witnessed since January 17th. Locally we see the release of Import Prices ahead of the RBA Governor due to speak in the evening at the Renminbi Global Cities Dialogue Dinner in Sydney. 

Headlines were dominated by tax reforms in the United States overnight as broad USD strength weighed heavily on the New Zealand Dollar. Starting the day at 0.6950, the Kiwi fell to an eventual overnight low of 0.6870 during the North American session against the US Dollar and tests March support. The Kiwi underperformed against the majority of currencies and with a lack of domestic data, will take cues from further offshore news as central banks in Japan and Europe take focus. The Kiwi opens this morning at 0.6890.

The Great British Pound edged marginally higher through trade on Wednesday consolidating recent gains and touching intraday highs at 1.2860. With little domestic data on hand to drive direction the GBP found support in disappointing tax reform proposals issued by the White House and a paring of recent USD gains. Having touched intraday lows at 1.2805 Sterling rebounded and seems to be reasonably well bid with supports at 1.28 and 1.27 as attentions turn to Friday’s prelim CPI print as a key marker for direction leading into the weekend. 

The U.S Dollar rallied early through trade on Wednesday as investors backed favourable tax reform announcements ahead of Trump’s critical market address. Moving through 111.70 to touch intraday highs at 111.77 against the Japanese Yen and forcing the Euro back through 1.09 the Greenback then pared gains as Trumps proposed plan hit the wires. Aggressive 20% corporate tax cuts failed to surprise traders with large wholesale proposals expected, however the lack of detail accompanying the proposal disappointed a large portion of market participants and the USD gave up earlier gains. The lack of new details highlighted just how far real tax changes are from influencing corporate earnings expectations and boosting domestic growth with congress and the house unlikely to pass the current plan with many investors suggesting the proposal is merely a marker for further negotiations rather than a realistic plan. Having fallen back through 111.50 and given up 1.09 again attentions now turn to key Central bank announcements from the BoJ and ECB. With both board expected to maintain their current policy outlooks direction will be driven by the commentary that accompanies each announcement. An upbeat Mario Draghi and ECB could force the Euro through five and half month highs and encourage a run to and through 1.10.