The Week Ahead: Dollar Mixed as Trump Pro-Growth Policies Remain Vague

The Week Ahead: Dollar Mixed as Trump Pro-Growth Policies Remain Vague

The U.S. dollar is mixed against majors as the Federal Open Market Committee (FOMC) minutes pointed to an interest rate hike “fairly soon” but were contrasted with cautious comments from Treasury Secretary Steven Mnuchin that have reduced expectations of pro-growth policies being introduced in the short term. House Speaker Paul Ryan invited President Trump at the end of January to speak before congress to deliver his first public address after his inauguration. This could be an opportunity to refocus his administration into pushing his anticipated fiscal stimulus and infrastructure spending policies.
 

Canadian central bank looks to hold interest rates
The Bank of Canada (BoC) will release its rate statement on Wednesday, March 1 at 10:00 am EST (3:00 pm GMT). The Canadian central bank is anticipated to hold interest rates unchanged at 0.50 percent despite rising inflation. The loonie has gained as the price of crude remains strong after the Organization of the Petroleum Exporting Countries (OPEC) production cut agreement came in effect earlier in the year despite the increase in drilling activity in North America. Weekly U.S. crude inventories will be published on Wednesday, March 1 at 10:30 am EST (3:30 pm GMT)

The EUR/USD lost 0.459 percent in the last five days. The single currency is trading at 1.0562 after touching lows of 1.0494 in the middle of the week as the minutes from the Federal Open Market Committee (FOMC) were released. The lack of commitment from Fed officials despite the hawkish rhetoric is passing the buck to the Trump administration to be the one responsible for signaling when rates will rise.
 

A breath of relief for France
French political anxiety was reduced as pro-European candidate Emmanuel Macron’s campaign is gathering momentum as one-time favorite Francois Fillon’s scandal has shaken the election’s outlook. The first round of the elections will take place on the 23 of April with low probability of a decisive win by candidates will force a second run between the top two candidates in early May. Polls now have Marie LePen and Emmanuel Macron going through to the run-off. Macron is then expected to get 59 percent of the vote making him the next French President.

Pro-growth policies delayed
The USD is also losing some momentum as the pro-growth policies promised by President Trump are now expected to come later in the year. Mnuchin’s comments about a significant tax reform passing by the August recess. Trump’s words before congress on February 28 could add some clarity to his economic agenda and in turn boost the USD, or if he intends to put priority on anti trade and immigration policies it could distract from the economic boost the Fed and the market are waiting for.

Gold rose 1.781 percent during the week. The yellow metal is trading at $1,260.19 as investors flocked to the safe haven asset after the U.S. has lacked commitment to its fiscal stimulus and political anxiety surrounding the French elections and Greek bailout payments.

Although the U.S. Federal Reserve members have said on various occasions that the central bank is ready to hike, and in some cases that waiting too long before raising rates would not be beneficial there is little evidence they will change interest rates in the upcoming March meeting. The CME FedWatch tool shows the market is pricing the probability of a rate hike at only 22.1 in March. The lack of details from the Trump administration on pro-growth policies have benefited the precious metal who is now near the levels it reached after the election on the surprise win by Donald.


Mexico’s new currency intervention tool
The USD/MXN lost 2.859 percent in the last 5 days. The currency pair is trading at 20.5403 after the Mexican central bank announced a new currency intervention tool on Tuesday: A $20 billion dollar hedging program that will not draw on Banxico’s $20 billion dollar international reserves. The peso is trading near post U.S. election levels.

An official visit from U.S. Secretary of State Rex Tillerson and U.S. Homeland Security Secretary John Kelly visited Mexico in an effort to improve international relations with its southern neighbor. The comments from Kelly in particular appeared to contradict those from Trump as the Homeland Security Secretary said there would be no mass deportations.

The biggest factor in the peso’s depreciation was Trump’s immigration and trade rhetoric. The market was caught by surprise when the President continues right on his campaign persona when there were other pressing matters to the U.S. economy. Mexican fundamentals have had little effect on the value of the currency as the high liquidity of the peso have made it a proxy for emerging market investments and later as a speculative vehicle to gauge the Trump effect. The lost momentum of the Trump trade has made the peso one of the top performers in the month of February.


Market events to watch this week:

Monday, February 27
8:30 am USD Core Durable Goods Orders m/m

Tuesday, February 28
8:30 am USD Prelim GDP q/q
10:00 am USD CB Consumer Confidence
7:30pm AUD GDP q/q
8:45pm CNY Caixin Manufacturing PMI

Wednesday, March 1
4:30 am GBP Manufacturing PMI
10:00 am CAD BOC Rate Statement
10:00 am CAD Overnight Rate
10:00 am USD ISM Manufacturing PMI
10:30 am USD Crude Oil Inventories

Thursday, March 2
4:30 am GBP Construction PMI
8:30 am CAD GDP m/m
8:30 am USD Unemployment Claims 245K 244K

Friday, March 3
4:30 am GBP Services PMI
10:00 am USD ISM Non-Manufacturing PMI
1:00pm USD Fed Chair Yellen Speaks

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar.