So a little over a week after the US election, Donald Trump is still President-elect. In other words, yes this is really happening…and we hope you’ve had time to digest the results, because we’ve got a second serving of analysis coming up. While we brought you the immediate (and surprisingly decent) market reactions last Wednesday, we figured it’d be time to take a look and see what, if anything, has changed since then.
Before we get into the nitty gritty, we should establish that a heavy air of uncertainty remains both among domestic and international observers. While the initial reactions to a Trump presidency were more muted (thanks in part to a ‘presidential speech’ and Clinton’s swift concession), questions about the prospective administration’s direction have emerged.
As Trump looks to appoint his cabinet, some of his choices (such as controversial right-wing businessman Steve Bannon) have prompted questions about whether he’ll stick to his hard line campaign rhetoric or attempt to govern more centrally. Throw in ongoing reports of disarray in the transition team (however reliable it may be) and you have a market that is still waiting for more information to react. To put it bluntly, things could change at a moments notice so you have to take everything with a grain (or spoonful) of salt. With that in mind, here’s how the markets have reacted over the last week.
The US Dollar
Despite a whole bunch of unknowns, and an initial dip against the majors, the US dollar has surged over the past week after pre-election fears of a crash proved false. At the time of writing (Wed, Nov 16), the dollar has continued its uptick (though it has slowed after the initial surge). In fact, the USD index managed a stunning 14-year high on Wednesday.
So why has the dollar been performing so strongly? Well, for now it’s basically thanks to the hope that Trump (or at least the new administration) can walk the walk as confidently as he talked the talk. Potential tax cuts, increased infrastructure spending, tariffs, and other possible policies have been driving inflation higher, which in turn has increased the perceived likelihood of the Federal Reserve raising interest rates. Trump has also criticized the Fed in the past for keeping rates low and may soon replace current Chair Janet Yellen with someone more hawkish.
With the next Fed meeting in December, it seems more likely than ever that the long awaited raise could happen – which in turn has boosted confidence in the dollar and the US economy as a whole.
That being said, this was today and tomorrow is tomorrow™. If questions about Trump’s cabinet and policy continue – which, considering his inauguration isn’t for over 2 months, is sure to happen – we could see a dramatic shift in the dollar’s fortunes in a matter of days. By the time you’re reading this for instance, you might already be hearing about the redenomination of the US dollar in the face of overwhelming collapse. And if that is the case, you should probably consult Canada’s Foreign Exchange Experts at your nearest branch.
|Rate: Nov 8 (12AM)||1.33334||0.90718||0.80724|
|Rate: Nov 17 (11:30AM)||1.34208||0.93749||0.80278|
The higher the number, the more valuable the USD is compared to the other currency. As of 11:30 AM on Nov 17, 2016, the USD is sitting higher against the CAD and EUR than it was on election day, however it has fallen slightly against the GBP. Keep in mind that after an initial ‘Trump-bump’, things do seem to be leveling out. Still, the fact that the USD is close to or stronger than it was a week ago is a more optimistic result than some predicted.
But What About Canada?
But what has this all meant for the Canadian dollar? While there are certainly economic fears associated with Trump’s rhetoric (especially when it comes to NAFTA), our dollar has been at the mercy of many of the same factors we’ve seen over the last year. First and foremost, there’s oil. Prices fell once again last week when it was revealed that the global oversupply of oil would continue. As should come as no surprise to any casual follower of the CAD – a drop in oil prices usually means a drop in the dollar’s value.
In addition, the hope of a strong US dollar well into the future caused many investors to ditch the loonie in favour of the greenback…so that has caused a fall in the CAD as well. That being said, better than expected manufacturing reports have boosted our dollar slightly as of today – so it’s not all hinging on what Trump’s next move will be.
Don’t Forget Wall Street
After the election, Wall Street was initially on cloud nine (after a brief downturn). On Tuesday, the S&P 500 and Dow Jones Industrial Average were both floating around record highs. That being said, one day later things seem to be falling back to earth a little bit – in part due to fears of potential inflation in the US dollar. So while the possible monetary policies of Trump might be getting the foreign exchange market all giddy, they have also been getting the stock market, well…the opposite. That being said, it’s safe to say that the immediate collapse some feared upon a Trump victory did not come to pass. And like with the US dollar, we can safely make the bold prediction that the stock market will bounce around A LOT over the coming months.
Looking Toward the Future
If it hasn’t become clear yet, speculation will be the name of the game from now until Donald Trump takes office. If the market goes too far in one direction, investors are likely to get skittish on the back of unrealistic expectations and bring it back down the other way.
It’s important to remember that over the last year the US economy and dollar have both been very strong. Will a new administration and different financial outlook will push the US to the next level or roll back the progress that has been made? Well that there is the million-dollar (or 1,343,575 Canadian) question.
Note: all content/values (with the exception of the table) were written around 4PM on Wednesday, Nov 16, 2016.
For more coverage on the US election, check out our immediate market reactions from the day after the vote. If you want to go back even further, take a look at our predictions and (then) potential similarities to the Brexit.
Stay informed. Stay Current.