Weekly Market Update
The National Bank of Canada | Jan 24, 2017 01:27AM ET
Range of the Week: 1.3100 – 1.3550
Last week was an eventful one for the three asset classes we watch most closely, with a fluctuation of more than 350 points for the USD/CAD pair, a Bank of Canada key rate decision, and a rumoured confirmation of crude oil output cuts by the main countries that reached an agreement on the matter in November. The week also ended with a major event covered by media around the world: the inauguration of Donald Trump as the 45th president of the United States.
The Bank of Canada (BoC) announced its key rate decision on Wednesday and updated its economic outlook given the significant climate of uncertainty brought on by the swearing in of Donald Trump. Not surprisingly, BoC Governor Stephen Poloz decided to keep the key rate unchanged at 0.50% with the impact of the Trump administration’s fiscal and potential protectionist measures on the Canadian economy still difficult to quantify. Poloz expressed concerns regarding the Canadian economy’s excess capacity and the strength of the loonie, which is dampening the outlook for export growth. The central bank nevertheless slightly raised its real GDP growth forecast for 2017 mainly due to the government’s fiscal measures and consumption. However, Poloz noted that the economic data released since the last BoC meeting in October were encouraging, citing retail sales and employment figures in particular. Currency markets seemed to retain the more negative comments, as the Canadian dollar lost ground against the greenback to end the week down by more than 200 points.
The indicators released on Friday, two days after Poloz’s comments, came in slightly below expectations. Annualized inflation was 1.5% in December, short of the expected 1.7%, while retail sales rose only by 0.2% compared to the forecasted growth of 0.5%. Despite these data not being as high as economists had predicted, inflation showed signs of acceleration compared to the previous months and (excluding the most volatile elements, food and energy prices) the change in the consumer price index was the most significant in five months. Retail sales were up by 0.7% on an actual basis (i.e., excluding the effects of price variations) and ended the third month in a row with significant volume growth. However, due to uncertainty, interest rate futures are not pricing in a significant probability of rate hikes in Canada before 2018, maintaining fixed rates (swap rates) at relatively low levels. It could therefore be interesting for borrowers to lock in a portion of their exposure to interest rates.
Get The News You Want
Few indicators were released in the United States with the focus being on Mr. Trump’s inauguration. However, certain members of the Federal Reserve discussed their vision for the U.S. economy. San Francisco Fed President John Williams advocated for gradual rate increases to keep the U.S. economy on track and avoid excessive inflation or speculative bubbles. Federal Reserve Chair Janet Yellen’s comments were along the same lines and did not sway markets significantly.
Few indicators are expected in North America at the beginning of this week. President Trump’s first decisions will no doubt play a prominent role in economic news. Comments related to trade agreements such as NAFTA and the Trans-Pacific Partnership will be of particular interest to investors. Friday will be busy in terms of U.S. economic indicators with the release of U.S. GDP figures for the fourth quarter of 2016 and U.S. Durable Goods Orders data.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.