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September 2017

Trump proposes big US tax overhaul

Published: Thursday 28 September 2017

  • Trump proposes big US tax overhaul
  • Canadian Dollar falls overnight
  • New Zealand Dollar remains the worst performing currency of the week 
By Denzil Rickerby
President Donald Trump has proposed the biggest tax overhaul in decades as part of a longstanding Republican effort to overhaul the US tax system. The framework released by the Republicans will lower the tax rate for corporations from 35% to 20% meaning it would be below the 22.5% average of the industrialised world. President Trump said the revamp will make the US more competitive and help ease the burden on middle class families, however, Democrats criticised the plan as a giveaway for the wealthy. The blueprint does not detail what tax benefits might be eliminated to offset the cost of the cuts, making congressional approval difficult and the changes so far less encouraging than his campaign promises. The markets, however, were pleased enough with the announcement and the US Dollar continued to strengthen from the more aggressive tone set by Federal Reserve Chair Yellen earlier on in the week. 

The Canadian Dollar tumbled overnight as investors were looking for confirmation that another rate hike was on its way, however, the Bank of Canada’s Governor Poloz left the market disappointed. Governor Poloz emphasised that there is no "predetermined path" for interest rates and decisions will be data-dependent, with inflation and wage growth slower than they anticipated – which could be a function from a stronger currency. Govenor Poloz suggested that the rate hiking cycle could be done for the time being and policymakers could "still be surprised in either direction". This softer tone help push the GBP-CAD exchange rate close to a three-month high. 

Bank of England Chief Economist Haldane says an interest rate rise would be a good news story, as speculation grows of an imminent increase. Haldane said he hopes we might be nearing the end of the tunnel on both productivity and pay and that his view is shared with the majority of the monetary policy committee, where a reduction is warranted in the coming months.

The New Zealand Dollar remains the worst performing currency of the week due to the inconclusive elections last week and the Reserve Bank of New Zealand (RBNZ) left the official cash rate unchanged at 1.75% overnight.  The RBNZ said policy will remain accommodative for a considerable period of time; and policymakers also downgraded the domestic growth outlook. The announcement helped GBP-NZD exchange rate near to a three-month high. 
Everything flows and nothing abides, everything gives way and nothing stays fixed." – Heraclitus
Very appropriate considering the ever-changing currency markets!
“Just because you do not take an interest in politics doesn't mean politics won't take an interest in you.” – Pericles
Remarkably apt in the current Eco political climate…

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