Markets Staying In Risk-on Mode; Dollar Turned Into Consolidation

 | Aug 07, 2017 05:05AM ET

The financial markets are trading in risk-on mode as another week starts, boosted by last week's record run in US equities. In addition to being supported by the set of solid job data, comments from White House economic adviser Gary Cohn also provided some optimism to investors. Nonetheless, in the currency markets, Dollar has turned into consolidative mode instead and is waiting for fresh inspirations. Euro, on the other hand, is regaining some growth. New Zealand Dollar and Yen are trading as the weakest ones so far. In other markets, gold failed to stand firm above 1280 handle last week and retreated on Dollar's rebound. it's hovering in tight range of 1260/5 for the moment. WTI crude oil is also struggling to regain momentum for another attempt of 50 handle yet.

US Cohn: Tax bill to be completed "early in the fall"

Comments from White House economic adviser Gary Cohn raised hopes of better US growth outlook. Cohn noted that the current US corporate tax rate, at 35%, is too high when compared with the average of 23% in OECD economies. Cohn reiterated that the government's timetable of getting a comprehensive tax bill completed "early in the fall", adding that top priority "for now until the end of the year is taxes". Recall that pro-growth tax plan outlined by the Trump administration in April proposed a 15% rate. Trump also proposed to reduce the number of individual income tax bracket from seven to three, with the highest marginal tax bracket dropping from 39.6% to 33%.

Kiwi lower ahead of RBNZ

New Zealand Dollar trades notably lower today as RBNZ's survey showed inflation expectation eased. The survey showed that respondents expect 1.77% annual inflation in 1 year and 2.09% in 2 years. That's much lower than the survey result three months ago, at 1.92% in 1 year and 2.17% in 2 years. For growth, firms expected GDP to grow 2.7% in 1 year and 2.64% in 2 years, comparing to prior 2.81% and 2.58% respectively.

The data comes just head of RBNZ meeting this week on August 9, which is a major focus of the week. RBNZ is widely expected to stand pat and keep OCR unchanged at 1.75%. The central bank will likely maintain a dovish tone and keep its own forecast that rates would be on hold until September 2019.

NZD/JPY's breach of 81.66 support last week indicates short term topping at 83.90, after failing to sustain above 83.76 resistance. Bias is back on the downside for 55 day EMA (now at 81.29). Sustained break there should confirm completion of whole rise from 75.65. And deeper fall would then be seen back to 61.8% retracement of 75.65 to 83.90 at 78.80 and below before getting support for rebound.