USD Hampered by US Tax Reform Uncertainty

The US dollar was steady against a basket of currencies on Thursday, but its short-term outlook was unnerved by concerns over possible postponement of US Presidential tax reform plan Donald Trump. USD holds at 94.903 against a basket of six major currencies, coming under a three-month high of 95,150 set at the end of October. The New Zealand Dollar (NZD) touched a two-week high after comments from the country's central bank on the inflation outlook seen as hawkish , although interest rates remain unchanged as expected. NZD rose to as low as USD 0.6974 in early Asian trade on Thursday, its highest level since October 24. Then descend from the peak and last traded at USD 0.6955.

The Reserve Bank of New Zealand (RBNZ) said the fiscal stimulus from the government led by the new Labor Party and weaker currencies would lead to faster inflation. The RBNZ projected a possible rate hike for the second quarter of 2019, three months earlier than previously estimated. Analysts said the broader market focus is on the fate of Trump's tax reform plan. A US Senate tax bill, which is different from that in the House of Representatives (DPR) is expected to launch on Thursday, complicating Republican tax-free efforts and rising Wall Street skepticism about the venture. Any potential delay in the implementation of tax cuts, or the possibility of reform proposals watered down, will likely work against the US currency , analysts said.

"There's a huge risk of disappointment," said Steven Dooley, currency strategist at Western Union Business Solutions in Melbourne. "The USD may experience a weakening phase behind the uncertainty surrounding the tax reform," Dooley said, referring to the short-term outlook. (JPY), USD rose 0.1 percent to 113.98 JPY, but remained below JPY's high of 114.735 on Monday.

Positive-risk sentiment helped support the USD against the JPY, even as the recent setback in the 10th US Treasury yield limits the potential for the USD's rise, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo. USD likely to trade in the range of JPY 112 to JPY115 for a while, Murata added. US Treasury yields last year reached 2,329 percent on Thursday, after retreating from a seven-month high of 2.477 percent at the end of October. In stock markets, the index The largest MSCI Asia Pacific outside Japan touched a one-decade high on Thursday, while Japan's Nikkei index rose above 23,000 for the first time since January 1992.

Such equity gains can strengthen investor appetite for riskier assets and weigh on JPY, a low-yielding currency often used to fund investment in higher-yielding assets. The European currency (EUR) held steady at USD 1.1592, staying above the USD 1.1553 low on Tuesday, its lowest level since July 20. USD was recently supported, partly due to expectations the Federal Reserve raised interest rates in December for the third time this year and for further Fed policy tightening next year.