Range of the Week: 1.2800 – 1.3350
The U.S. dollar (USD) continued to slide last week as the DXY Index, which tracks the value of the greenback against a basket of currencies, lost ground for the third straight week. Since the beginning of 2017, the index is down close to 1.7%. According to numerous analysts, these movements may be related to the political environment in the United States, where the new president is beginning to implement his vision via a series of executive orders, which could lead to volatility in financial assets.
Markets are hoping for measures that favour economic growth, such as an infrastructure spending plan and tax cuts.
The USD lost 1.37% against the Canadian dollar last week. The USD/CAD pair has returned to the levels where it was prior to the most recent Bank of Canada (BoC) rate decision on January 18. It should be noted that BoC Governor Stephen Poloz stressed his discomfort with an overly strong Canadian dollar when the decision was announced and stated that monetary easing measures remain a possibility. Last Tuesday, U.S. President Trump complicated Mr. Poloz’s job by signing an order allowing Canadian firm TransCanada Corp to re-submit its application for the Keystone XL pipeline project, which would bring Canadian oil directly to refineries in the southern United States. The Energy sector of the benchmark index for Canadian equities and the Canadian dollar reacted strongly to the news.
On the economic indicator front, last week was relatively quiet, with no news in Canada and the two most anticipated data points in the United States released on Friday. First, U.S. GDP for the fourth quarter of 2016 was a slight disappointment, however markets did not react strongly. The U.S.
economy recorded growth of 1.9%, after economists had predicted a reading of 2.2%. Exports were particularly weak and growth was mainly the result of inventory accumulation. Durable Goods Orders for December also disappointed analysts, with a dip of 0.4% compared to the expected increase of 2.5%. Our economists are nevertheless stressing that corporate investments should rebound in 2017 with stabilizing crude oil prices and stronger confidence further to the promises of tax cuts and deregulation from the Trump administration.
This week will be busier, with several central banks making rate decisions, starting with the Bank of Japan on Tuesday, followed by the U.S. Federal Reserve on Wednesday and the Bank of England on Thursday. A number of U.S. indicators will also be released, including two manufacturing indexes, Construction Spending and job data on Friday. In Canada, we will be keeping an eye on GDP growth for November, Industrial Production for December and the Markit Manufacturing Index for January.