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The Trump dump: U.S. dollar's woes drive Canadian dollar higher

Briefing highlights

  • U.S. dollar's woes send loonie higher
  • Toronto, Hamilton see record home price gains
  • Vancouver housing slump deepens

Loonie shoots higher

The U.S. dollar is in broad retreat, in turn driving the loonie skyward.

President-elect Donald Trump’s news conference Wednesday sent the U.S. currency down as he failed to give many details about key fiscal policy issues that investors were looking for.

“After a bounce in the U.S. close, USD has sold off hard again in Asia and is back at the lows hit during Trump’s press conference,” said Royal Bank of Canada senior currency strategist Elsa Lignos.

Overnight and into the morning hours, the Canadian dollar has in turn traded in a fairly wide range, as low as 75.85 cents (U.S.) and as high as 76.73 cents, falling back closer to the 76-cent mark by midday.

It’s not just the U.S. dollar, but oil prices are helping to push the loonie higher.

“Today’s headlines are both favourable for a stronger loonie,” said London Capital Group senior market analyst Ipek Ozkardeskaya.

“The broad-based sell-off in the U.S. dollar and the recovery in oil prices are the major factors driving the loonie to three-month highs against the greenback.”

There’s so much going on, from the lack of fiscal details, the potential flare-up with China after Rex Tillerson, Mr. Trump’s nominee for Secretary of State, and the “Russian spy shenanigans,” as Ms. Ozkardeskaya put it. Not to mention Mr. Trump’s latest attack on the pharmaceutical industry.

“Among the circus of Russian hacking fake news and alike, the big losers from yesterday’s speech appear to be pharmaceuticals and car makers, with Trump expressing the will to bring down drug costs and impose a large border tax on firms moving operations abroad to then sell back into the U.S.,” said IG market analyst Joshua Mahony.

“Perhaps the biggest loser from yesterday’s speech was the U.S. dollar, which has been slammed throughout the night,” he added.

“The weakness evident in both the dollar and stock markets alike centres on the unwillingness of Trump to discuss in any detail the fiscal stimulus package which has proven the number one driver of optimism throughout the markets post-election.”

It’s interesting because, as Bank of Nova Scotia strategists Shaun Osborne and Eric Theoret noted, little has actually changed.

“The Trump dump reflects market disappointment that more information on the new administration’s economic and fiscal plans were not divulged, which has cast some doubt over the broader reflation trade (higher yields, stronger equities, rising USD),” they said, referring to the U.S. dollar by its symbol.

“It is early days for the Trump administration, however, and still early in the year,” they added.

“Our broader thesis of USD remaining relatively strong on the basis of relatively superior growth and relatively tighter monetary policy over the course of the year remains intact.”

Toronto housing market surges

Toronto’s housing market is chalking up fresh records as Vancouver’s slump deepens.

Toronto prices rose in December at a record pace of 19.7 per cent from a year earlier, according to the latest reading of the Teranet-National Bank home price index Thursday.

Vancouver prices also rose from a year earlier, by a strong 17 per cent, but the story there lies more in the monthly performance.

Prices in Vancouver have been easing as sales slump, particularly in the wake of a new provincial tax on foreign buyers of Vancouver area homes.

Thus, prices in Vancouver slipped 0.8 per cent in December from November, marking the third straight drop for a cumulative 2.8 per cent.

In Toronto, prices rose 1.2 per cent from November, marking the 11th consecutive increase.

“National house price inflation has shed some momentum in recent months as Vancouver continues to deflate,” said Marc Pinsonneault of National Bank.

“Canada’s priciest city experienced its third consecutive monthly decline, and more is in store,” he added.

“The price drop so far far was mostly concentrated in dwellings other condos. This is consistent with house sales declines (since their February peak) mostly concentrated in detached dwellings.”

Here’s the cross-country showing for others on a monthly basis: Victoria, up 1.2 per cent, Quebec City and Calgary each up 0.6 per cent, Hamilton and Halifax each up 0.4 per cent, Ottawa-Gatineau 0.3 per cent, and Edmonton 0.1 per cent.

Prices fell 0.5 per cent in Montreal and 1.2 per cent in Winnipeg.

The annual reading: Prices climbed 17.7 per cent in Victoria, a record 17.5 per cent in Hamilton, 3.6 per cent in Ottawa-Gatineau, 3.4 per cent in Winnipeg, 1.5 per cent in Halifax, 0.8 per cent in Montreal, 0.6 per cent in Cagary, and just 0.1 per cent in Edmonton. Prices in Quebec City fell 0.7 per cent.

Mr. Pinsonneault and other economists believe Toronto is headed for a cooling period amid new federal tax and mortgage rules. Economists forecast, though, that price growth will simply ease, rather than an outright contraction.

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