The Canadian dollar continues to have a quiet week. In the Wednesday session, USD/CAD is trading at 1.3238, up 0.37% on the day. In economic news, there are no Canadian events. In the U.S, markets are expecting mixed construction numbers – Building Permits are expected to climb to 1.33 million, while Housing Starts are forecast to drop to 1.32 million. Later in the day, Federal Reserve Chair Jerome Powell testifies before the House Financial Services Committee. On Thursday, Canada releases the ADP Nonfarm Employment Change. The U.S will publish the Philly Fed Manufacturing Index and U.S unemployment claims.
With trade tensions hovering, investors are keeping a close eye on the Canadian manufacturing sector. Manufacturing Sales in May rebounded with a gain of 1.4%, after a decline of 1.3% a month earlier. Last week, the Bank of Canada raised rates by a quarter-point last week, to 1.50%. This is the highest level since December 2008. Will we see more rate hikes in 2018, as will likely be the case in the U.S? The BoC rate statement said that “higher rates will be needed” in order to keep inflation close to the target of 2 percent. Policymakers are keeping a close eye on the simmering trade war, which has seen Canada and the U.S impose tariffs on each other’s products. If the Canadian economy can escape the trade war relatively unscathed, we could see another rate hike at the BoE policy meeting in September.
Fed Reserve Chair Jerome Powell reaffirmed his positive outlook on the U.S economy in testimony before the Senate Banking Committee. Powell said that he expected the labor market to remain tight and inflation to stay close to the Fed’s target of 2 percent for the next several years. Powell added that the Fed would continue to gradually raise interest rates. Lawmakers appeared satisfied with current monetary policy, but Powell did face some pointed questions regarding the escalating trade war, which has raised concerns that economy could take a downturn if the tariff battles continue.
