- Equity edged northwards in Asian session as US fiscal aid negotiations restarted.
- The Fed’s dovish stance and the possibility of additional fiscal stimulus could keep the USD under pressure..
- US Dollar Index (DXY) set to extend losses as the price drops below key support.
Stock markets pushed mildly higher in the Asian session amid coronavirus vaccine developments and the revival of US fiscal stimulus talks.
Australia’s ASX 200 edged 0.03% higher despite a much stronger than forecastQ3 GDP print.
In FX markets, the risk-sensitive AUD, NZD and CAD outperformed and the safe haven USD and JPY lost ground.
Looking ahead, Eurozone unemployment figures and speeches from several members of the Federal Reserve will be in focus.
Renewed Fiscal Stimulus Talks to Cap USD Gains
A revival of fiscal stimulus hopes could limit any gains in the safe haven US Dollar after US lawmakers propose a $900 billion package to restart negotiations.
Even so it still seems relatively unlikely that a large fiscal stimulus bill will happen given the Republicans strong opposition to the Democrats’ previously proposed 2.4 trillion package,
It remains to be seen if these talks will bear fruit considering the vastly differing opinions on the size of any additional stimulus bill.
Whilst both sides disagree over the size of a stimulus package, they do at least both believe that some form of stimulus needs to be passed before the year end.
The prospect of further fiscal support could drag on the US Dollar..
Dovish Fed to Drag on USD
The latest FOMC November meeting minutes showed that the Fed could ease policy in December.
With Treasury Secretary Mnuchin’s putting an end to several Fed funding facilities after their December 31 deadline, and as covid cases surge, the Fed could look to act sooner rather than later.
As a result the US Dollar could come under further pressure in the coming weeks.