Dollar on back foot as tax deal doubts weigh, Aussie looks to jobs data
The dollar was on the defensive on Thursday as doubts on the prospects of U.S. tax reforms offset an uptick in underlying U.S. inflation while the Australian dollar hovered near four-month lows ahead of key local jobs data.
A Senate Republican tax plan drew fire from two Republican lawmakers on Wednesday in a possible sign of trouble for the sweeping measure, given the party can afford to lose no more than two votes from their ranks.
"For the moment, the U.S. tax cuts will be the main theme of the markets. I would expect negotiation to drag on beyond the year-end but by the first quarter of next year, there will be a deal," said Yukio Ishizuki, senior strategist at Daiwa Securities.
Signs of a set back in the U.S. tax reform plans, which have been a primary driver of the dollar recovery since September, were enough to offset a boost to the currency from U.S. consumer inflation and retail sales data.
Annual core inflation accelerated to 1.8 percent in October after having stayed at 1.7 percent
Both beat market expectations slightly and further firmed up the case for a December rate hike by the Federal Reserve. But beyond this year, U.S. interest rate futures were pricing in a slightly smaller chance of a rate hike early in 2018 than before Wednesday's data.
On top of that, the fall in U.S. share prices and junk bonds in recent days also made investors cautious.
As the dollar faced head winds, the euro traded at $1.1774
The dollar dipped to 112.47 yen on Wednesday and fetched 112.87 yen
The Australian dollar hit a four-month low of $0.7574 the previous day on surprisingly weak reading on wages. It was last at $0.7587
The upcoming local jobs data due at 0030 GMT is the next biggest test for the currency.