Insights

This week will be dominated by whether Donald Trump signs the Republican tax bill into law. The USD index recovered significantly last week, and should the bill be passed we would expect the Greenback recovery to continue into the new year. This week also sees the release of the Fed’s preferred measure of inflation (Core PCE). So far inflationary pressures have been absence and thus the market is cynical of the Fed’s tightening cycle. Fiscal policy stimulus can often be more inflationary than monetary policy, as the impact of monetary policy can easily be exported. Locally there is little data of note, and thus the commodity market is likely to be the principal driver of the AUD’s direction.

Note for IMPORTERS:  Due to movements in the AUD and USD swap curves, six months AUD/USD “bid” forward points are now only approximately 5 (0.0005). Importers are used to paying a much higher premium for hedging forward and in our experience counterparts are being a little slow in passing this benefit on. Click the full report or call for more details on forward points.

Key Themes

1. Republicans hope to have the tax bill on Trump’s desk for signing before the end of the week
2. US GDP (exp 3.3%) and the core PCE deflator (exp 1.4%) are the data highlights this week
3. Malcolm Turnbull reclaimed the Liberal majority as John Alexander was elected back to Parliament