The Canadian dollar is steady in the Friday session, after posting gains on Thursday. Currently, USD/CAD is trading at 1.3250, down 0.05% on the day. On the release front, Canada releases monthly GDP, which is expected to drop to 0.0%. On the inflation front, the Raw Materials Price Index is forecast to climb to 1.2%. In the US, Core PCE Price Index is expected to remain pegged at 0.2% for a fourth straight month, while Personal Spending is forecast to drop to 0.4%. We’ll also get a look at UoM Consumer Confidence, which is forecast to rise to 99.1 points.
Investors are keeping a close eye on the Bank of Canada, which holds a policy meeting on July 11. The bank has strongly hinted that a rate hike could be coming soon. On Wednesday, BoC Governor Stephen Poloz had a hawkish message for the markets, noting that inflation was on target and the domestic economy was performing well. However, Poloz also mentioned that the trade war between Canada and the U.S was hurting business investment. Currently, the likelihood of a rate hike in July is 55 percent. Canadian economic data in the next two weeks will likely be the determining factor as to whether the BoC presses the rate trigger, or opts to wait until later in the year.
The tariff showdown between the U.S and its major trading partners continues, and the crisis could affect U.S monetary policy. Currently, the Federal Reserve plans to raise rates four times in 2018 (up from three), but a global trade war could force the Fed to revise its forecast down to three hikes. There is a split among Fed policymakers with regard to the number of rate hikes in the second half of 2018. Earlier in the week, Atlanta Fed bank president Raphael Bostic said that if the trade war intensified, he would vote against a fourth rate hike, due to downside risks to the economy. Fed Chair Jerome Powell sounded pessimistic about the economic effects of trade tensions at an ECB forum earlier in June, and if other Fed members express similar concerns, the Fed could delay a fourth hike until 2019.
