A modest risk off mindset engulfed investors to start the week, Not too surprisingly investors continued to ponder the US political musings while extrapolating just how negatively impactful the recent development would be from the viewpoint of both US fiscal and tax reform. While the deluge of repetitive headlines centred on finger pointing and speculative fragmentation amongst GOP members to the extent, it did become akin to flogging a dead horse. But mainly the bungled AHCA vote means less money to fund tax reform without ballooning the fiscal deficit.Naturally the market, which always prices in the worse case scenario, spent the past 24 hours bemoaning the Capitol Hills fallout while questioning the US administration’s broader economic policy agenda. This mindset had left the risk compound under pressure but let’s not forget that with WTI precipitously tumbling to the key $47.00 per barrel level, it too likely had as much influence over investor’s psyche but when the key WTI support level held the markets moved into consolidation mode. Commodity markets closed the session mixed, Gold higher but Iron ore down 4 % The Greenback is weaker against most major counterparts but is slightly above its session lows.While US equity markets finished none the worse for wear with the S&P500 closing down just 0.1% as stock traders while undecided about the significance of the failed health care bill, have certainly not hit the panic button. And correctly so in my view, as it’s unlikely we’ve seen the last of the Obamacare repeal as the Trump administration now realises the importance of getting one’s ducks in a row.
Australian Dollar
The Australian dollar continues to feel the overhang of risk aversion but is very wobbly after getting sideswiped by another drop in Iron ore prices overnight. While mainland’s deleveraging policy triggered the slide; it appears the markets are finally coming to the reality check that when the port stock rises, it foretells a drop in prices. And with the Trump reflation trade on the ropes, those stockpiles are looking even more ominous in traders eyes. In this light, I think it would be safe to say that the Aussie will continue to underperform its’ commodity bloc peers and on a break of the .7600 level we should expect AUD is selling to accelerate.
Euro
The Sturdy PMI surveys and the general improving tone in the EU data continue to underpin the Euro. And with the ECB members making overtones regarding shifting policy, we may be in the early stages of a significant reversal in the Euro fortunes as the fundamentals are starting to turn favourably hard.
Japanese Yen
USDJPY had all but lost its lost topside momentum near term, and it would surprise me if the markets did not go all out into sell-on-rallies exemplar. Mounting headwinds from the national Moritomo scandal, Japanese Year end repatriation flow, US political uncertainty and off course a less hawkish Fed All has the market thinking the lower is the path of least resistance. Mind you much this mindset is driven on the back of discombobulation on Capitol Hill so at any sign of GOP unity can shift this risk-averse mindset quickly.
