USD/CAD has edged lower in the Friday session, as the pair trades slightly above the 1.33 line. Canadian banks and stock markets are closed for Good Friday and there are no Canadian events on the schedule. We’re likely to see thin trading in the currency markets as we wrap up the trading week. In the US, it’s a busy day, with the release of CPI and Retail Sales reports. CPI is expected to tread water at 0.0%, while the forecast for retail sales stands at 0.2%. We’ll also get a look at the Treasury Currency Report, which details currency practices of the United States’s major trading partners. Earlier this week, President Trump said that China was not guilty of currency manipulation, contradicting what he had repeatedly declared on the campaign trail.
As expected, the BoC held rates at 0.50% on Wednesday. Following the rate decision, BoC Governor Stephen Poloz sounded a bit more hawkish than in previous statements, saying that the central bank was "decidedly neutral" regarding monetary policy. The BoC raised its growth forecast for 2017, as employment numbers have improved in recent months. The markets are not expecting the BoC to raise rates in 2017, but further rate hikes from the Federal Reserve could complicate things, as wider divergence between interest rates in Canada and the US could hurt the Canadian dollar and put pressure on the BoC to respond by raising rates.
US consumer behavior has been perplexing, displaying a "hard/soft discrepancy" with regard to consumer indicators. Consumer confidence levels have failed to translate into stronger consumer spending, a key driver of economic growth. Confidence levels are considered "soft" data, compared to actual spending numbers, which are termed "hard" data. Will this pattern continue in the March releases? On Thursday, UoM Consumer Sentiment improved to 98.0, beating expectations and hitting a 3-month high. However, the markets are expecting retail sales reports, the primary gauges of consumer spending, to remain at weak levels. Core Retail Sales and Retail Sales are expected to remain unchanged in March, with gains of 0.2% and 0.1%, respectively. On the business front, surveys are pointing to a similar trend, with weak orders despite high confidence levels. The Fed will be closely monitoring consumer spending reports, and if these numbers remain soft, it’s unlikely that the Federal Reserve will press that trigger more than two more times in 2017.
