Trump tour moves to South Korea
The President’s Asia tour has progressed from Japan to South Korea, where Trump’s meeting with the South Korean prime minister, the heads of some of the country’s largest companies and other cabinet ministers. One of the White House’s chief aims will be to reinforce and reassert the importance of a united leadership between South Korea, Japan and the United States in the face of an increasingly globalized China and a strong voice to head off any North Korean aggression. Unfortunately, historical animosity between South Korea and Japan makes this a difficult task and Trump’s trip will have to tread carefully on what is certainly diplomatic thin ice.
While the dollar’s sensitivity to the talks in Asia has been and will be relatively limited, the long-term impacts could be significant – political and diplomatic unity in east Asia is something Presidents have always had a difficult time with. Either way, Trump and his team are probably welcoming the distraction after opinion polls show the President’s approval rating has fallen to a new post-election low.
Tax bill passing through the House Ways and Means Committee
Trump’s ‘Cut Cut Cut Act’ faces another day of tough challenges as it gets the mark-up treatment from Democratic and Republican lawmakers. Yesterday’s amendments included concessions on earned income tax credit, carried interest, international tax rules and university endowments and attacks from Democrats who slated the bill as nothing more than a squeeze on the middle class to the benefit of top earners. Expect more of the same today.
Rumble down under
AUD has continued its recent decline as the Reserve Bank of Australia held rates at 1.5% and maintained their growth expectations for the coming forecast period. The New Zealand dollar has also taken a leg lower as the new Labour/NZ First coalition government announced and confirmed that they are considering charging the Reserve Bank of New Zealand with a dual mandate of inflation stability and full employment.
A change in the mandate would undermine the main reason for holding the NZD; the amount of ‘carry’ that investors receive from holding the kiwi dollar would likely fall as monetary policy loosened. Unemployment is only 4.8% in New Zealand and that is close to what is considered to be a Natural Rate of Unemployment (NRU) in an economy. The issue in New Zealand is much like the issue here; higher employment, stagnant wages and poor productivity. This is more an issue for government than a central bank.
The day ahead
Outgoing Fed Chair Janet Yellen speaks later today and scheduled commentary from Bank of Canada governor Poloz could excite the CAD.
Have a great day.