The Canadian dollar has gained grounds in the Wednesday session, recovering most of the losses from Tuesday. Currently, USD/CAD is trading at 1.2731, down 0.36% on the day. On the release front, the focus is on Canadian housing data. Housing Starts is expected to slip to 211 thousand, while the markets are forecasting a strong rebound for Building Permits, with an estimate of 0.7%. On Thursday, Canada releases the New Housing Price Index, while the US will publish unemployment claims.
The Canadian dollar received a boost from BoC Governor Stephen Poloz on Tuesday, after Poloz maintained a neutral stance towards interest rates. Poloz said that the Bank continued to monitor how the economy was doing after rate hikes in July and September. The markets were caught off guard by the September move, and the Canadian dollar responded with strong gains. Poloz did not offer any insight as to future rate hikes, leaving the markets guessing regarding a December rate hike. Poloz added that he was not concerned that inflation remains below the BoC's target of 2 percent. The BoC will have to keep a close eye on the US, as the Federal Reserve is almost certain to raise rates in December. If the BoC does not match the hike, the Canadian dollar will likely weaken against the greenback.
US President Trump is off in Asia, but there is plenty of activity in Congress. After failing to pass a new healthcare act, President Trump has his sights set on tax reform, a key item in his domestic platform. Trump wants Congress to pass legislation overhauling the tax code before the end of the year, but that could prove to be too tight of a deadline. Most Democrats have come out against the proposal, and not all Republicans are on board. The bill would cut corporate taxes from 35% to 20%, but predictably, Democrat and Republican lawmakers are at odds as to whether the bill will lower taxes for the middle class. The bill is presently being debated in a congressional committee and is expected to move to the House floor next week. The Senate will present its version of the bill on Thursday, so we can expect plenty of activity in Congress in the next few weeks. Expectations that Trump will cut taxes has been the catalyst for a stock market rally over the past year, and if the bill does become law, the US dollar will likely gain ground.