Talking Points:
- Aussie, NZ Dollars continue to be buoyed by “fade the Fed” capital flows
- Euro may fall if IFO says German political uncertainty hurting sentiment
- US Dollar may not get much help as Congress passes tax cut legislation
The Australian and New Zealand Dollars continued to edge higher in otherwise quiet Asia Pacific trade. The move coincided with a narrowing of the spread between 2- and 5-year US Treasury bond yields, hinting that “fade the Fed” dynamics evident after last week’s FOMC rate decision continue to drive yield-seeking demand toward the two currencies as traders mark down scope for Fed tightening.
The European data docket is relatively quiet, with Germany’s IFO survey of business confidence seemingly the only noteworthy item to consider. The headline business climate index is expected to remain unchanged at 117.5 in December, matching a record high recorded in the prior month. An unexpected pullback reflecting lingering political uncertainty after September’s general election may weigh against the Euro.
On the sentiment front, FTSE 100 futures are pointing higher ahead of the opening bell in London to hint at a risk-on mood that might translate into weakness for funding currencies, most notably the Japanese Yen. Contracts tracking the S&P 500 are trading conspicuously flat however, warning against assuming a strong directional bias with scope for lasting follow-through.
US fiscal policy remains an important consideration as members of Congress prepare to vote on Republican-driven tax cut plan with the aim of getting signed by President Trump before year-end. The move might’ve been expected to boost the US Dollar previously, but its impact on inflation and follow-on implications for Fed policy – at least as markets perceive them – may be priced in already.
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Asia Session
European Session
** All times listed in GMT. See the full DailyFX economic calendar here.
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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