Dollar Mixed Ahead of Trump Inauguration

Donald Trump to kick off his first 100 days strong

Donald J. Trump will become the 45th President of the United States when he is sworn into office tomorrow. Markets will be following the event as his transition team has promised to deliver executive actions from day one. Here is a quick schedule of the Inauguration:

9:30 am EST- Inauguration ceremony begins
11:30 am EST- Opening remarks.
Noon – Trump will recite the oath of office. Afterward, Trump will deliver his inaugural address.
12:30 EST – Ceremony ends.
3 pm to 5 pm EST – Inaugural parade.
7 pm to 11pm EST – Three official inaugural balls.

The U.S. dollar was mixed during the Thursday trading session ahead of the big event. The NAFTA currencies, CAD and MXN had a volatile session following comments from earlier in the week about the renegotiation of the trade agreement. The Mexican peso had been a focus of Trump, but the CAD was quickly caught in a downtrend losing about 0.40 percent on Thursday.

Trump has not changed much since his combative persona during the primaries and the election which he eventually won. His first 100 days in office are full of uncertainties for all asset classes which portents higher volatility as more of his policies are finally revealed.

The EUR/USD gained 0.266 percent in the last 24 hours. The single currency is trading at 1.0665 after the European Central Bank (ECB) held rates and quantitative easing amounts as expected. ECB President Mario Draghi asked markets to be patient as the euro zone is on a path of recovery even without speed on the needed structural reforms. Inflation is higher, but that is linked to rising energy prices which is the work of the Organization of the Petroleum Exporting Countries (OPEC) and the production cut agreement.

The USD/MXN lost 0.219 precent during the trading session. The currency pair is trading at 21.9421 after once again breaking through the 22 price level. Comments from President-elect Trump on imposing a border tax and his hounding of automakers with a presence in Mexico has further weakened the peso. The reality is that if Trump delivers on his growth objectives for the U.S. economy it would greatly benefit Mexico as a major commercial partner. Even with a weak currency Mexico could use that to its advantage and erode the negative effects of a tariff. The unknown nature of the extent of Trump’s policies is what is putting downward pressure on the Mexican currency. While in theory a renegotiation of NAFTA could indeed be beneficial for all three nations, given Trump’s criticism of previous deals the market anticipates an uncompromising negotiation from the U.S. which might not yield the best results.

The USD/CAD has gained 0.403 percent after Trump Trade Chief’s remarks on the future of NAFTA. The currency pair is trading at 1.3316 and is threatening the 1.34 price level if Nominee Commerce Secretary Wilbur Ross words on Wednesday about NAFTA being the first thing on their agenda with all aspects on the table for renegotiation. The loonie had been appreciating in 2017 on the back on the surge of oil prices and improving fundamentals, but as Bank of Canada (BoC) Governor flagged Trump uncertainty is a factor that make a Canadian interest rate cut a possibility.

The central bank was proactive in 2015, but stayed in the background in 2016 letting the new Liberal government do the heavy lifting with the introduction of an stimulus program. Rising commodity prices had boosted economic recovery, while the CAD had gotten a pass from Trump’s ire as the talk was focused on Mexico. Now the loonie joins the peso on as an American border tax could impair the exports from Canada and Mexico. There is a belief that Trump will not be as harsh with Canada as he is anticipated to be with Mexico, although there is little evidence to back this claim if the goal is to protect American jobs from exiting the country.

Market events to watch this week:

Thursday, January 19
7:45am EUR Minimum Bid Rate
8:30am CAD Manufacturing Sales m/m
8:30am EUR ECB Press Conference
8:30am USD Building Permits
8:30am USD Philly Fed Manufacturing Index
8:30am USD USD Unemployment Claims
11:00am USD Crude Oil Inventories
9:00pm CNY GDP q/y
Friday, January 20
4:30am GBP Retail Sales m/m
8:30am CAD CPI m/m
8:30am CAD Core Retail Sales m/m

*All times EDT