USD/CAD has edged lower in the Thursday session. Currently, USD/CAD is trading at 1.3030. In economic news, there are no Canadian events on the schedule. In the US, it’s another busy day, with three key events on the calendar – Building Permits, Philly Fed Manufacturing Index and Unemployment Claims. The markets are expecting unemployment claims to rise to 243 thousand.
All eyes were on Federal Reserve Chair Janet Yellen earlier this week, as she made her semi-annual appearance before Congress. In her testimony, Yellen was upbeat about the US economy. She noted that inflation is moving towards the Fed’s 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen’s next challenge can be considered an enviable task – when is the appropriate time to raise rates in order to cool down the economy – in June or as early as March? A rate hike appears to be just a question of time, as Yellen warned that "waiting too long to remove accommodation would be unwise". If the US economy stays on track in 2017, analysts expect two three small rate hikes. At the same time, the Fed needs to take into account the economic stance of the new administration, which remains unclear. President Trump has promised to outline a tax reform plan in a few weeks, but has left the Fed and the markets in the dark regarding economic policy. Unless the economy takes an unexpected turn downwards, it’s very likely that the Fed will press the rate trigger by June.
With Europe still fuming at Britain for opting to leave the European Union, Canada is poised to take advantage of the situation. Canada and the EU have been working on a free trade agreement (CETA), and the House of Commons voted on Tuesday to adopt the agreement. The legislation now moves to the Senate, which is expected to stamp its approval in March. As well, the European Parliament voted 408-254 to ratify the agreement. CETA is expected to boost Canada-EU trade by 20 percent, which translates into $12 billion for the Canadian economy. Both sides have high hopes from the agreement. Canada is looking to reduce its dependence on the United States, which is the destination of 80 percent of Canadian exports. President Trump’s protectionist stance has sent alarm bells off in Ottawa, with Trump declaring he would rip up NAFTA. Trump has since lowered the rhetoric, saying that he wants to "tweak" the agreement with Canada. Given Trump’s unpredictability, Canada will be looking to build on CETA and conclude trade agreements with other countries. For the EU, this would mark the first trade agreement with a G-7 member and comes at a time when EU-US free trade talks have been suspended.
