US dollar steady after US tax bill moves closer to ratification

[TOKYO] The US dollar held modest gains against its peers on Monday, having received a lift after US tax reform efforts moved another step closer to ratification over the weekend.

The US currency had edged higher after Republicans on the House-Senate negotiating committee on Friday put the finishing touches on a sweeping tax overhaul that involves large corporate tax cuts.

Top Republicans are confident Congress will now pass the tax bill this week, with a Senate vote as early as Tuesday and President Donald Trump aiming to sign the bill by week's end.

The US dollar's gains, however, were limited as investors adopted a wait-and-see approach until the deal was sealed.

It was effectively flat at 112.645 yen following Friday's rise of 0.2 per cent. The US dollar index against a basket of six major currencies stood little changed at 93.890 after gaining 0.5 per cent on Friday.

"The Senate and House will now vote on the tax bill this week and there appears to be some residual concern that all might not go smoothly, especially with some senators facing health issues," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

Senators Thad Cochran and John McCain have been ill in recent weeks and have missed votes.

"The US government also faces a shutdown if it does not extend a spending deal beyond Dec 22. While the tax bill is likely to be passed and a government shutdown is also likely to be averted, both these concerns have to be assuaged before the dollar can rise," Mr Yamamato said.

The US dollar also failed to get support from subdued US Treasury yields. The long-term Treasury yield has been confined to a narrow 2.34-2.42 per cent range over the past week.

"As long as US yields don't climb higher, the dollar cannot mount a sustained rise. The market only sees the Federal Reserve raising rates about twice next year, rather than the three hikes the Fed projected," said Koji Fukaya, president of FPG Securities in Tokyo.

"The debt market may need more convincing that three hikes are in the works in 2018," Fukaya said.

The euro was little changed at US$1.1758 after slipping 0.2 per cent on Friday.

On Friday, Germany's Social Democrats (SPD) agreed to open exploratory talks on forming a government with Chancellor Angela Merkel, providing a chance to end a rare period of political deadlock in Europe's largest economy.

The euro did not draw much support though as the talks between the German parties are not expected to begin in earnest until January.

The pound remained on the defensive after sliding about one per cent against the US dollar on Friday, on profit taking after news Brexit negotiations would move to the second round in January.

Sterling was largely flat at US$1.3337.

The Australian dollar added 0.2 per cent to US$0.7658. The New Zealand dollar retained its upward momentum from the previous week, when it rose 2.25 per cent against the US dollar. The kiwi added 0.25 per cent on the day to US$0.7009.

The South African rand momentarily rallied nearly 3 per cent to 12.73 rand per US dollar, its strongest in 3-1/2 months, after it was reported that South African Deputy President Cyril Ramaphosa was likely to be nominated as the next chief of the ruling party African National Congress (ANC). It last traded at 13.10 rand per US dollar.

Analysts said relief that Ramaphosa rather than Nkosazana Dlamini-Zuma, the ex-wife of scandal-ridden South African President Jacob Zuma, could be ANC's next leader lifted the rand. Whoever emerges as the head of the ANC is likely to become the country's next president after elections in 2019.

Bitcoin was down 2.7 per cent at US$18,451 on the Bitstamp exchange. It rose to a record high of US$19,666 on Sunday, the day CME Group Inc launched its own contract to wager on the cryptocurrency.

REUTERS