USD/CAD is unchanged in the Friday session. In North American trade, the pair is trading slightly above the 1.33 line. On the release front, Canadian Manufacturing Sales gained 0.6% in January, marking a third straight gain. In the US, today’s highlight is US Preliminary UoM Consumer Sentiment, which is expected to improve to 97.1 points.
As widely expected, the Federal Reserve raised rates by a quarter-point on Wednesday. The rate hike, the second in just three months, raised the benchmark lending rate to a 0.75%-1% range. The dollar reacted negatively, declining broadly against its major rivals. This was largely due to disappointment with the Fed, which sent a more dovish message than the markets wanted to hear. Leading up the rate announcement, there had been speculation that a red-hot US economy would propel the Fed to accelerate its pace of monetary tightening, with possibly four rate hikes this year. Instead, Fed Chair Janet Yellen reiterated that further rate hikes would be "gradual" and left its "dot plot" unchanged, with a projection for three rate hikes in 2017. As well, the US dollar may have lost ground due to traders and investors acting on "buy on rumor, sell on fact". This large-scale selling of US dollars after the Fed hike has sent the US dollar broadly lower, and the Canadian dollar has taken advantage, gaining 1.1 percent this week.
Oil remains under pressure, and weak crude prices could weigh on the Canadian dollar. West Texas crude plunged 8.7 percent last week and dipped below the $47 level this week. US Crude Oil Inventories finally reversed directions, posting a drawdown of 0.2 million barrels, compared to an estimate of 3.3 million. This decline comes after the indicator posted 11 surpluses in the past 12 weeks, reflective of increasing US shale production. OPEC cobbled together a deal to cut production which began on January 1, but the expected jump in oil prices has failed to materialize, as the increase in US production has more than offset the OPEC cutbacks.
