The euphoria that surrounded President Trump's tax plan announcement did not last long as, surprisingly, he failed to provide concrete policy details. After starting the day on the front foot, the US stock market reversed gains and pushed most indices into negative territory. European markets followed Wall Street leads and opened below the neutral threshold on Thursday, with the Euro Stoxx 600 sliding 0.40%. In the FX market, the US dollar was unable to consolidate pre-announcement gains and lost ground against most G10 currencies.
The Canadian dollar was the best performer this morning as it rose 0.35% against the greenback, erasing yesterday's losses completely. After tumbling earlier this week when Trump slapped tariffs on imported Canadian softwood lumber, the loonie got a breath of fresh air amid a declaration that the US will not terminate NAFTA “at this time” but would rather try to re-negotiate the treaty.
Since the threat of the US leaving NAFTA was the biggest headache for Mexico and Canada, we anticipate that selling pressures on the CAD and the MXN will ease further. However, we believe that we won’t see a sharp rally as the unpredictability of Trump will keep investors on the defensive.
By Arnaud Masset
