The Canadian dollar is unchanged in the Thursday session, after posting gains on Wednesday. In European trade, USD/CAD is trading at 1.2469, up 0.03% on the day. On the release front, US unemployment claims are expected to dip to 240 thousand, while the Philly Fed Manufacturing Index is forecast to slow to 21.9 points. There are no Canadian indicators on the schedule. On Friday, Canada will release key consumer spending and inflation data. CPI is expected to accelerate to 0.3%. The markets are predicting that retail sales will also improve to 0.3%. The US will release Existing Home Sales and Fed Chair Janet Yellen speaks at an event in Washington.
With the Canadian economy performing well, could another rate hike be in the cards? The Bank of Canada surprised with a rate hike in September, but policymakers are concerned over tensions about NAFTA. Talks between Canada, the US and Mexico over re-negotiating NAFTA have floundered, raising the possibility that Donald Trump will scrap the agreement. The BoC would prefer not to raise rates until the NAFTA negotiations are settled. However, the Federal Reserve is widely expected to raise rates in December and the BoC will be under pressure to follow suit and protect the Canadian dollar.
There was good news out of the Canadian manufacturing sector on Wednesday. Manufacturing Sales jumped 1.6% in August, ending a streak of two declines. The excellent reading was the highest gain this year, and points to a manufacturing sector which has benefited from strong global demand for Canadian products.
Federal Reserve Chair Janet Yellen is due to retire in February, and the markets are keeping close tabs on who will replace her at the helm of the powerful central bank. President Trump is leaning towards nominating economist John Taylor, who is considered more hawkish on policy than Yellen. Under Taylor, interest rates would likely move substantially higher than the current 1.25%, and a rate hike early in 2018 could strengthen the US dollar against gold. Other candidates for the Fed Chair include current Fed Governor Jerome Powell and former Fed official Kevin Warsh.
