The price to pay for your 401(K)

There are two things that’ll be on the dollar’s mind this week and that’s the incoming GOP tax plans and who’ll be at the helm of the Federal Reserve up to 2020.

Firstly, if Trump’s Twitter feed is to be believed, the Republican tax plan should imminently be landing and it supposedly claims to save an average of $4,000 per household through slashing corporation tax down to 20% from 35%. What remains to be seen is just how this tax saving on corporates will be fed into workers’ pockets and what the distribution of these tax cuts will be – which makes the use of such statistics close to useless.

As has been the case with Trump’s healthcare and border plans, it’s unlikely his fiscal blueprint will emerge unscathed once it makes it was through the House, but Trump was sure to clamp on the importance of the budget. According to Politico, the President dialled in to a conference call on Sunday to tell the House Republicans that they need to get moving on tax reform and pass the Senate budget straight away. Trump added that the only alternative was a massacre at the polls in 2018.

One element of certainty that’s been fed to the press is the protection of the 401(K) plan – despite some House Republicans supposedly angling for a cap on contribution limits.

How this effects the dollar is as yet unclear. The greenback’s been trading well over the past few sessions on the back of hope that tax plans will see little resistance in the House. Much of the Trump Trade since his election last November has been based on the expectation of lower taxes on corporate profits. If the bill sees a lot of resistance we could easily see the dollar retreat.

And then there were three

President Trump was at his imprecise best over the weekend when asked about nominations for the job of the Chair of the Federal Reserve. Trump told reporters “most people are saying it’s down to two – Mr. Taylor and Mr. Powell. I also met with Janet Yellen, who I like a lot, I really like her a lot. So, I have three people that I’m looking at, and there are a couple of others. I’d say I will make my decision very shortly.”

Report at the tail-end of last week suggested that Trump was inching towards the appointment of Jerome Powell, a current Fed governor, who’s worked in the past under George HW Bush and directly influenced policy targeting financial institutions and the market for Treasury debt. In the past, Powell’s been seen as a more dovish member of the FOMC, so his appointment could be followed by a spell of dollar weakness.

Further afield

After dismal inflation and retail sales data from Canada last week, USD/CAD’s trading at levels not seen since late August. What does this mean for the Bank of Canada rate decision on Wednesday? Probably nothing. After raising rates for the first time since crisis, it took the Federal Reserve another 12 months to raise rates for the second time, and there’s no reason why the Bank of Canada won’t follow suit. They’re expected to keep rates unchanged at 1%.

Have a great week.