Markets were pushed and pulled on leaks and reports from tax plans Thursday in a clear sign of what's at stake. The Swiss franc was the top performer while the New Zealand dollar lagged. New RBA forecasts are due up later.
Markets soured on signs the Senate would ask for a one-year delay in cutting corporate taxes to 20% on Thursday but the mood had improved by late in the day on signs the legislation could pass.
There is a balance between how favourable the plan is for business and the economy versus the likelihood of success. The initial reports of a one-year delay in the corporate rate sent the S&P 500 down as much as 26 points and USD/JPY as low as 113.10 – the worst in a week.
Signs of support from influential Senators late helped to boost USD/JPY back to 113.50 and the S&P 500 closed down 10 points.
At the same time, other markets were pulled in different directions. There was a sizeable slump in Eurozone sovereign bonds and that pushed 10-year yields up roughly 5 bps throughout the continent and narrow spreads with Treasuries. That gave the euro a half-cent boost.
In Japan, we will be watching the Nikkei very closely in the day ahead. It surged to the highest since 1992 on Thursday before reversing to close slightly lower. The selling continued in the futures market in a nearly 4% drop from the peak.
Aside from that, Australian dollar risks will be high at 0030 GMT when the RBA will update its forecasts on growth and inflation in the Statement on Monetary Policy.