Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The CAD was the worst performing currency this week after a surprisingly strong performance over the past two weeks. Warnings by Bank of Canada Governor Poloz about the strength of the CAD hampering Canada's competitiveness, negative effects of U.S. policies on Canada's exports, and that an "interest rate cut remains on the table" were the catalyst for the Canadian dollar's weakness. The USD also received a boost from positive comments by Fed Chairman Yellen along with firm inflation readings. Canada's inflation and retail sales data were both soft, missing expectations. The AUD continues to perform well while the GBP had its strongest week in nearly a decade after a speech by PM May reduced several uncertainties surrounding BREXIT.
Yesterday, the uptrend in USDCAD continued as the pairing climbed from 1.3253 up to 1.3355 before easing towards 1.3325 in late trade. The pairing dipped to 1.3285 amidst broad-based USD weakness during the Asian session but the flows reversed during the London session sending USDCAD up to 1.3379. There was a quick dip down to 1.3340 ahead of the Canadian retail sales and inflation data but weaker than expected results saw the pairing bounce to 1.3388. Equity markets are higher along with oil prices ahead of the 9:00am Trump inauguration and we are seeing some minor USD weakness which has USDCAD holding near 1.3350/60 at the moment. Technically, USDCAD looks poised to retest the Dec. 28th high of 1.36 after the swift reversal from Tuesday's 3 month low at 1.3018.
Canada's main stock index rose on Thursday as oil prices rose and the energy, financial and industrial groups gained ground. U.S. stocks opened little changed on Thursday, with investors seemingly wary of taking on risk ahead of Donald Trump's swearing-in as U.S. president on Friday. After having driven Wall Street to record highs in a post-election rally, investors are on the sidelines as they await Mr. Trump's inaugural speech to get a steer on his policies. Markets are also eyeing a speech by Federal Reserve Chair Janet Yellen. In an appearance on Wednesday, Ms. Yellen said the U.S. economy was getting closer to running on its own, but soothed some nerves by adding that it made sense to raise interest rates gradually.
Ms. Yellen is expected to speak on monetary policy at Stanford University at 8:00 p.m. ET. Investors have been worried that Trump's pro-growth policy proposals may boost inflation, forcing the central bank to increase the pace of rate hikes. Ms. Yellen's comments indicated that the plan to raise rates three times this year is not "farfetched".
As expected, the Bank of Canada announced that it is maintaining interest rates at 0.5%. They highlighted unknowns around U.S. President-elect Donald Trump's policies and that significant uncertainties from the U.S. are weighing on the nation's economic outlook. These include a shift toward protectionist global trade policies. Inflation has been slower than anticipated because of a drop in food prices, and new measures of core inflation the bank adopted late last year also reflect material excess capacity in the economy. The Bank of Canada projects that Canada's real GDP will grow by 2.1% in both 2017 and 2018. This implies a return to full capacity around mid-2018, in line with October's projections. Meanwhile in the UK, economists question PM Theresa May's Brexit plan outlined in a speech yesterday and major banks are starting to quantify the effects on their London business. HSBC Holdings Plc Chief Executive Officer Stuart Gulliver said that operations generating about 20% of revenue may have to move to Paris, while Anrea Orcel, UBS Investment bank President, said the bank will have to move employees from London following the UK exit from the EU.
Stocks, bond yields and the dollar fell on Tuesday, while gold rose as investors drew in their horns in response to comments on the dollar from U.S. President-elect Donald Trump and ahead of a speech on Brexit from British Prime Minister Theresa May. Trump's remarks that the dollar is too strong and hurting U.S. competitiveness pushed the greenback down across the board, even against sterling, which is under heavy pressure as May is expected to confirm her "hard Brexit" stance later on Tuesday. Britain's pound was higher on the day but still close to Monday's three-month lows, while the Japanese yen hit a six-week high as investors sought shelter from the mounting political risk of a week that also includes Trump's inauguration. Investors are seeking clarity on his policies after campaign pledges on tax cuts and government spending helped lift stocks and the dollar and were deemed positive for economic growth.
In remarks to the Wall Street Journal published on its website late on Monday, however, Trump said U.S. companies could not compete with China "because our currency is too strong. And it's killing us." Safe-haven investments such as gold and government debt also gained. Sterling is trading higher ahead of Theresa May's speech on Brexit but we're expecting a wild ride for the pound today.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The CAD was off to another great week before giving up its gains Thursday and Friday. The USD and the GBP lagged while the JPY and the AUD outperformed. The CAD generally followed broad market sentiment this past week with no key economic releases out of Canada. Also, the correlation with oil prices appeared to have loosened for the 3rd consecutive week. Technically, USDCAD broke below the December low of 1.3080 and tested a 3 month low near 1.3030 but this move was quickly rejected with markets swiftly sending USDCAD back up towards 1.3170. Although the Trump speech did little to buoy the USD, economic data and hawkish statements from various U.S. Fed members helped the USD to recover during the latter part of the week.
Markets have experienced a fairly active start for what was expected to be a quiet session with Martin Luther King Day. The pound fell, equities slid and gold climbed on concern UK Prime Minister Theresa May is prepared to lead Britain out of the European Union's single market and as the US President-elect suggested other countries could break from the bloc. Sterling fell below 1.20 against the USD for the first time since October after the Sunday Times said that May is ready to withdraw from tariff free trade with the region in return for the ability to curb immigration and strike commercial deals with other countries. Banks were among the biggest losers in European stocks after Goldman Sachs Group Inc. downgraded Royal Bank of Scotland Group Plc, citing exposure to volatile politics. Caution dominated markets amid tough talk from May and Trump about Europe's economic and political institutions. British government officials trying to limit damage to the pound will speak to major banks in London before the UK leader sets out her vision for leaving the bloc in a speech on Tuesday, according to people familiar with the situation. Meanwhile Trump predicted that Britain's exit will be a success that will encourage other to do the same. He also branded NATO obsolete.
The U.S. dollar nursed widespread losses on Thursday after President-elect Donald Trump's long-awaited news briefing provided little clarity on future fiscal policies, disappointing bulls who had bet on major stimulus. Trump did not mention possible tariffs against Chinese exports, a relief for Asian share markets that have feared the outbreak of a global trade war. The lack of detail about a potential stimulus also put safety plays such as bonds and gold back in favor, cooling bets that have built in recent months on significantly higher global inflation and series of U.S. interest rate hikes. It was enough to send the dollar tumbling back below 114 yen for the first time in five weeks and brought some welcome relief to Brexit-bruised sterling . European shares also fell, bucking gains in Asia and Wall Street overnight and weighed down by a 2 per cent slump in healthcare stocks after Trump said pharmaceutical firms had been "getting away with murder" with their prices. They weren't being helped either by a deck of stronger currencies. The euro was back at $1.0650 for the first time in a month, shaky sterling climbed above $1.22 and Sweden's crown hit a four-month high and cracked its 200-day moving average against the euro after strong inflation data.
President-elect Donald Trump is due to give his first press conference since July at 8am today, with the event likely to be overshadowed by news that he was briefed by intelligence officials about reports that Russia has compromising information about him. The Kremlin this morning denied those reports, with Dimitry Peskov, a spokesman for President Vladimir Putin, describing them as "pulp fiction". Trump took to Twitter to issue his own denial, describing the events as a "witch hunt". The President-elect's address may provide details on the timing and scope of planned policies from infrastructure spending to trade pacts that will set the tone on financial markets in 2017. The dollar and stocks have been stuck in a month long rut since the Federal Reserve's rate decision. Speculation Trump will pursue a pro-growth agenda unencumbered by backlash from any protectionist moves sparked the rallies that drive American equities to records and the dollar to a 14 year high.
Risky assets hit the skids on Tuesday, with stocks and sterling tumbling over political uncertainty over Britain's future ties with the European Union and the policies of the incoming U.S. president, Donald Trump. European stock markets opened broadly lower, with the exception of Britain's blue-chip FTSE stock index, which hit a fresh record high on the back of sterling's fall to multi-week lows – seen as beneficial to exporters. The British currency hit a 10-week low against the dollar and an eight-week low against the euro after weekend comments by British Prime Minister Theresa May that she was not interested in Britain keeping "bits" of its EU membership. A revival in worries that Britain could be headed for a "hard Brexit," in which it chooses to take full control of immigration and give up access to the single market, reverberated across financial markets, lifting demand for safe-haven assets such as German government bonds and gold, which rose to its highest level in over a month. EYES ON TRUMP A near 4-per cent slide in oil prices on Monday also tempered risk appetite, while caution was also setting in ahead of a news conference on Wednesday by Trump, his first since winning the election. The market has high expectations for Trump's economic policy; perhaps they are booking profits just in case he throws in a curve-ball at tomorrow's much anticipated press conference. For FX markets, what will be particularly important will be what his plans are for the trade policy, for the relationship with China.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The CAD was the best performing currency this week assisted by positive risk sentiment in global equity markets. Oil prices continued to hold near 18 month highs since last month's OPEC deal to cut production. Last month, USDCAD surged in the 2nd half from 1.3080 up to 1.3600 after the U.S. Fed raised its key rate and indicated the possibility of another 3 rate hikes in 2017. However, since testing 1.36 on Dec. 28th, USDCAD has been trending lower, nearing a 1 month low of 1.3177 on Friday. Canada surprised the markets with jobs gains well above expectations. Also, Canada posted its first trade surplus in more than 2 years. Despite solid U.S. economic data and Fed rate hike expectations still in place, the USD has underperformed during the first week of 2017.
Stocks slumped while treasuries rose with gold as the new year rally in riskier assets faltered as uncertainty over the U.K.'s future trading role with Europe drove haven demand. US equities slipped from records, with the Dow Jones Industrial Average retreating toward 19,900. The yield on 10 year Treasury notes slid below 2.40%, while gold posted the first 2 day gain since the US election. Oil fell for the first time in four days. The British pound was trading 1.1% lower following comments over the weekend from Prime Minister Theresa May which stoked fears that the U.K will lose access to Europe's single market. In an interview with Sky News she said that regaining control of immigration and lawmaking are a greater priority than membership of the single market. With just over a year remaining on Janet Yellen's current term as chair of the Federal Reserve, comments from 3 of her potential successors at this weekend's annual American Economic Association meeting are noteworthy. Glenn Hubbard of Columbia University, along with Stanford University's John Taylor and Kevin Warsh, are all seen by Fed watchers as potential future chairs should President-elect Donald Trump decide not to re-nominate Yellen. All 3 criticized the US central bank for trying to do too much, and suggested interest rates would be higher if they were in charge.
Yesterday, USDCAD traded from 1.3280 down to 1.3252 before climbing to 1.3316. The pairing then plummeted to 1.3190 before easing back towards 1.3250 in late trade. USDCAD was holding near session highs this morning before falling to 1.3177 after the 5:30am jobs reports. Canada surprised the market with 81,300 full time job gains – the best in over 5 years, propelling the CAD to the top performer on the day. The U.S. data was pretty much as expected – the 22k headline miss was made up by the 26k revision to prior data. The USD also saw broad-gains as a sharp increase in wages supports rising inflation expectations / further interest rate hikes. This caused USDCAD to bounce to 1.3230. Canada also surprised the markets posting its first trade surplus in more than 2 years. USDCAD has tested 1.3180 level a 2nd time but has since regained the 1.3200 level.
World stocks hit their highest level since mid-2015 on Thursday after strong Chinese data added to the optimism about global growth and inflation that has been driving markets since the start of the new year.
Growth in China's services sector accelerated to a 17-month high in December, a private sector survey showed, adding to upbeat factory and service sector surveys out of the United States, Europe and Asia released this week. In addition, minutes from the U.S. Federal Reserve's December meeting showed that many of the central bank's policy makers are expecting a pick-up in economic growth and inflation in the world's biggest economy as a result of fiscal, regulatory or other policies. The MSCI world equity index, which tracks shares in 46 countries, was up 0.4 per cent at one stage to hit its highest level since July 2015. At that level it was up over 1.5 per cent for the year so far. The index was pushed up by Asian shares, which rose for the eighth consecutive day on Thursday.