Dollar firms as markets replied positively to tax plan

The Dollar strengthened and hit a one-month high against its peers this Wednesday, after Donald Trump announced plans to slash the US corporate tax rate to 20% from its present 35%. It’s the biggest US tax overhaul in three decades, offering to cut taxes for most Americans but prompting criticism that the plan favours the rich and could add trillions of Dollars to the deficit. Moreover, the release of upbeat US durable goods orders, helped give an added lift to the greenback, which has benefited from rekindled expectations that the Federal Reserve will raise interest rates again by year-end.

Yesterday, the Loonie extended its losses early hitting 1.2505 against its US counterpart, after Bank of Canada (BoC) governor Stephen Poloz dampened expectations for further rate hikes this year. Poloz said that there is no “predetermined path for interest rates” and that the Central Bank will proceed “cautiously” as it assesses the performance of the economy. His cautious approach to further tightening appeared to stymie some in the markets who have expected the BoC to deliver an additional rate rise in 2017.

Meanwhile, Gold prices fell and hit a one-month low of $1277.93 per ounce, pressured by the rising likelihood of a US interest rate hike in December and as a new tax plan boosted the Dollar on the back of stronger economic data. A stronger Dollar makes bullion more expensive for holders of other currencies, while higher interest rates lead to higher Bond Yields and dampen demand for non-yielding Gold.