The Canadian dollar is drifting in the Friday session. Currently, USD/CAD is trading at 1.2707, up 0.01% on the day. On the release front, Canada will release a host of CPI indicators, led by CPI. This key indicator is expected to rebound with a gain of 0.4% in January. In December, CPI declined 0.4%, its first decline in six months. In the US, there are no data releases, but we’ll hear from three FOMC members – William Dudley, Loretta Mester and John Williams.
Canadian retail sales reports, released on Thursday, were dismal in December. Core Retail Sales plunged 1.8%, well of the estimate of +0.1%. This marked the sharpest decline since January 2015. It was a similar story with Retail Sales, which fell 0.8%, missing the estimate of 0.0%. This was the indicator’s worst showing since March 2016. The soft readings pushed USD/CAD as high as 1.2754 on Thursday, its highest level since late December. The Canadian dollar has dropped 1.2% this week, and if CPI also misses expectations, the slide could continue.
Investors remain wary after the recent stock market turbulence, which wiped off some $4 trillion in valuations. A key factor in the sharp correction was investor concern that higher inflation in the US would trigger more interest rate hikes. This has led to close monitoring of any releases connected to the Federal Reserve, and led to high anticipation ahead of the release of the January minutes on Wednesday. There were no major revelations in the minutes, and policymakers did not discuss a quicker pace of rate hikes. Still, policymakers hinted that further rate hikes could be in the cards, due to strong economic conditions in the US. In the words of the minutes, policymakers “anticipated that the rate of economic growth in 2018 would exceed their estimates of its sustainable longer-run pace and that labor market conditions would strengthen further”. At the December meeting, the Fed penciled in three rate hikes in 2018, but there is growing sentiment in the markets that the Fed may have to raise rates four or even five times this year. As for inflation, the minutes did not reveal any concern, with most Fed members were of the opinion that inflation would rise towards the Fed target of 2 percent.
