After a rough week, the Canadian dollar is almost unchanged in the Monday session. Currently, USD/CAD is trading at 1.2634, up 0.04% on the day. On the release front, it’s a quiet start to the week, with no major US events until Wednesday. Later in the day, Canada releases Wholesale Sales, which is expected to slow to 1.1 percent.
The Canadian dollar lost 1.3% last week against the greenback, and is currently at its lowest level since August 31. USD/CAD gained ground on Friday, as Core Retail Sales slumped with a decline of 0.7% in August. This marked the indicator’s steepest decline since June 2016. Inflation remains weak, as CPI inched up to 0.2%, shy of the estimate of 0.3%. These numbers have bolstered the likelihood that the Bank of Canada will sit on its hands at its policy meeting next week. The odds that interest rates will stay the same have increased to 81%, up from 73% prior to the core retail sales and CPI data. Canada’s economy has slowed down after an excellent first half of 2017. Strong economic growth and and an increase in exports prompted the BoC to respond with a rate hike in September.
The markets are keeping a close eye on the Federal Reserve, as President Trump has said he will nominate a new Fed head shortly. The front runners are economist John Taylor and Federal Reserve Governor Jerome Powell. Taylor advocates a rule in which rates which be as high as 3 percent, given current economic conditions. Powell is more closely aligned to Fed Chair Janet Yellen’s monetary stance which advocates an incremental increase in rates. With the two candidates representing sharply differing views on interest rate levels, Trump’s choice for the new Fed chair could have a significant effect on monetary policy and the strength of the US dollar.
