AUD USD Exchange Rate Tumbles as US Tax Reform Gathers Speed

The Australian Dollar US Dollar exchange rate tumbled today on news that the US senate has successfully passed a budget vote that lawmakers expect to pave the way for tax reform.

Trump Tax Reform Makes Headway, USD Exchange Rates Climb

Lawmakers voted 51 to 49 in favour of the $4tn US budget resolution on Thursday night, a resolution that should, in theory, get the ball rolling on US President Donald Trump’s tax reform.

This news is also notable in that it might allow said tax legislation to pass without Democrat support – something that has, historically, been lacking when the Trump administration has tried to issue reform.

Trump praised the successful vote, stating: ‘This now allows for the passage of large scale Tax Cuts (and Reform), which will be the biggest in the history of the country!’

The White House also hailed the passing of the bill, stating that it ‘creates a pathway to unleash the potential of the American economy through tax reform and tax cuts’.

The tax reform proposal includes collapsing the current seven tax brackets down to three; 12%, 25% and 35%, and lowering the corporate tax rate down from 35% to 20% – more in line with the world average.

This could provide increasingly fertile ground for new businesses and indeed households, an eventuality that would prove extremely beneficial for the US economy.

Investors are aware of this prospect – with the reaction to progress being greeted with a jump in demand for the US Dollar.

AU Housing Supply Concerns Limit AUD Exchange Rates

Australian Dollar (AUD) exchange rates have been destabilised today by a statement from Reserve Bank of Australia (RBA) Assistant Governor Michele Bullock, who highlighted ongoing concerns regarding Australia’s housing supply.

Bullock used the home development in Brisbane as an example, stating: ‘The current stock is due to increase by 25% in the next two years. That’s an awful lot of apartments to come into Brisbane. What you’re already seeing, in fact, is rents and prices declining. So we’re a little bit concerned this supply is going to cause issues’.

Despite being on the backfoot today against the US Dollar, the ‘Aussie’ was bolstered by yesterday’s news that unemployment in Australia unexpectedly fell to 5.5% in September, down from 5.6% in August and below the market forecast of 5.6%.

This was their lowest jobless rate since May, news that gives some credence to the possibility of a rate hike in the first half of 2018.

AUD USD Outlook Volatile on Tonight’s US Monthly Budget Statement

The AUD USD exchange rate could become increasingly volatile depending on the outcome of the US monthly budget statement, with the market consensus being that the deficit will shrink from August’s $-108b to $6B.

If this occurs then the US Dollar could see an additional jump.

Beyond this, markets will also be paying attention to comments from Federal Reserve Chairman Janet Yellen, who will be delivering a speech titled ‘Monetary Policy Since the Financial Crisis’.

Markets do not, however, expect Yellen to reveal anything new regarding the possibility of a near-term rate hike from the Fed.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon