The surprise election of Donald Trump has brought two main themes to the forefront on financial markets.
The first is the highly positive perception of the fiscal stimulus measures announced during Mr. Trump’s various speeches further to his victory and the possible deregulation in certain sectors (the Dodd Frank Act for example in the financial sector).
The other theme is nationalism/protectionism, with renegotiating the NAFTA free trade agreement one of the key planks of his campaign.
The first theme has been positive for the U.S. dollar, which has risen sharply against the euro and the yen since the election results were announced.
The second theme is negative for the Canadian economy and therefore for the CAD (as well as the Mexican peso). Nevertheless, the low current expectations of a key rate cut in Canada do not appear to reflect this threat to free trade.
In an environment in which the Federal Reserve still appears poised to raise rates in December and anticipations of a rate cut from the Bank of Canada could increase, Canadian importers (USD buyers) are at risk.
Exporters (USD sellers) should take advantage of the 1.3500-1.3900 zone by placing orders.
Olivier Cosialls