The Canadian dollar is unchanged in the Thursday session. Currently, USD/CAD is trading at 1.2761, down 0.02% on the day. On the release front, Canada releases Manufacturing Production, with the markets braced for a decline of 0.4%. In the US, unemployment claims is expected to drop to 235 thousand, and the Philly Fed Market Index is forecast to slow to 24.5 points. On Friday, Canada releases a host of inflation numbers, led by CPI. In the US, the focus will be on housing data, with the release of Building Permits and Housing Starts.
The Bank of Canada plans to proceed with caution, according to Senior Deputy Governor Carolyn Wilkins. On Wednesday, Wilkins said that less stimulus will be needed over time, and she expected wages to rise as the economy improved. Wilkins acknowledged that there was uncertainty over the future of NAFTA, and this was affecting business investment.
The US released key consumer spending and inflation data on Wednesday, and there were no surprises. CPI and Core CPI matched the forecasts, with gains of 0.1% and 0.2%, respectively. Consumer spending reports were a mix – retail sales gained 0.1%, shy of the estimate of 0.2%. Core Retail Sales came in at 0.2%, beating the forecast of 0.0%. The Federal Reserve would certainly like to see higher inflation numbers, which remain well below the Fed inflation target of 2.0%. Still, the markets are very bullish on additional rate hikes, as the odds of upcoming rate hikes continues to move higher. Currently, the likelihood of a rate hike in December stands at 96%, and a January raise is priced in at 94%.
Central banks do their best to avoid causing market volatility, which requires clear communication with the public and the markets. However, with bank policymakers making public statements on a daily basis, differences in opinion on future monetary policy or quantitative easing are bound to come up, and this can lead to market movement. Early in the week, Fed Chair Janet Yellen and ECB Mario Draghi participated at an ECB event which focused on communication with the markets. Yellen acknowledged that the FOMC committee of 19 members posed problems, as members did not always speak with a unified voice. Yellen admitted that this problem would not be solved anytime soon, saying it was "a work in progress".
