The Canadian dollar has posted slight losses in the Wednesday session. Currently, USD/CAD is trading at 1.3190, down 0.15% on the day. In the U.S, the focus is on inflation reports, CPI and Core CPI are expected to remain pegged at 0.2%. Unemployment claims is expected to fall to 226 thousand. Canada releases the New Housing Price Index, which is forecast to edge upwards to 0.1%. The indicator has failed to post a gain since November. On Friday, the U.S releases the UoM Consumer Sentiment report.
The Bank of Canada has been hinting for weeks that a rate hike was coming, and made good on this promise on Wednesday. The Bank raised rates by a quarter-point, bringing the benchmark rate to 1.50%. This is the highest level since December 2008. The Bank followed up with a hawkish rate statement, as policymakers noted that the economy continues to operate close to capacity. The BoC has upwardly revised its growth forecast for Q2 from 2.5% to 2.8%, and projected inflation to climb to 2.5%, before falling to 2% in the second half of 2019. As for the escalating trade war, the rate statement noted that U.S tariffs on steel and aluminum and retaliatory tariffs by Canada would lower economic growth. However, the effect of the tariffs would be modest, due to strong global demand and high commodity prices.
Investors continue to keep a close eye on the trade war being waged by the U.S and its major trading partners, particularly China. After the U.S and China imposed tariffs on each other of some $30 billion, the Trump administration has raised the ante, threatening to hit China with further tariffs on $200 billion worth of Chinese goods. China cannot retaliate in kind, since it does not import that amount of goods from the U.S. Still, the Chinese can take steps which will make it more difficult for U.S companies to do business in China. The U.S dollar has benefited from the recent trade battles, and if this trend continues, the euro could be facing some substantial headwinds.
