The Canadian dollar has ticked lower in the Wednesday session. Currently, the pair is trading at 1.2517, up 0.04%. On the release front, there are no Canadian events. In the US, ISM Manufacturing PMI is expected to inch lower to 58.1 points. Today’s key event is the release of the Fed minutes from the December meeting. On Thursday, the focus is on employment numbers, with the release of ADP Nonfarm payrolls and unemployment claims. On Friday, there are key events on both sides of the border, led by US Nonfarm Payrolls and Canadian Employment Change.
The Canadian dollar started the New Year on a positive note, as USD/CAD briefly broke below the 1.25 line for the first time since mid-October. The currency enjoyed a respectable 2017, posting gains of 6.6% against its US cousin. Will the positive trend continue in January? With the US economy booming, the Federal Reserve raised rates in December, and another move is expected this month. This will put strong pressure on the Bank of Canada to match with a rate hike, or risk seeing the Canadian dollar lose ground as investors move to a more attractive US dollar.
The Federal Reserve will be in the spotlight on Wednesday, with the release of the minutes of the December policy meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25-1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground. The economy is expanding at an impressive clip of above 3 percent. If this pace continues, the Fed could raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Despite the rosy economic conditions, inflation has been chronically soft, well below the Fed target of 2 percent. Outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will push up wages and trigger higher inflation, but this is yet to happen.
