The Canadian dollar is almost unchanged in the Friday session, as USD/CAD stays close to the 1.25 line. In European trade, the pair is trading at 1.2488, up 0.03% on the day. On the release front, Canada releases key consumer spending and inflation data. CPI is expected to accelerate to 0.3%. The markets are also expecting an improvement in retail sales reports, with Core Retail Sales and Retail Sales expected at 0.5% and 0.3%, respectively. In the US, Existing Home Sales is expected to slow to 5.30 million, and Federal Reserve Chair Janet Yellen will deliver remarks at an event in Washington.
It’s been a quiet week for the Canadian dollar, which hasn’t veered far from the 1.25 level. The lack of movement could change in Friday’s North American session, as Canada releases CPI and retail sales. If these indicators beat expectations, the Canadian currency could move higher. As well, the odds of the Bank of Canada raising rates before the end of 2107 would likely improve. There was positive news from the manufacturing sector earlier this week, as 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 demand for Canadian-made motor vehicles. The robust manufacturing sector and increase in oil prices has led to a surge in exports, which are expected to jump 8.0% in 2017. Still, there are some sore spots in the export sector, such as softwood lumber, due to a dispute over tariffs with the US.
There has been plenty of speculation about whether Janet Yellen will be replaced as chair of the Federal Reserve when her term expires in February 2018. Yellen may be interested in serving a second term, but President Trump is looking at other options. Trump has not been complimentary towards Yellen, although it’s hard to argue that Yellen has not done an admirable job. Yellen has ended quantitative easing, raised interest rates and started to unwind the Fed’s balance sheet. Trump’s shortlist includes Jerome Powell, Kevin Warsh and John Taylor. Trump may lean towards Taylor, an economist 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.
