HomeContributorsFundamental AnalysisCanadian Dollar Edges Higher, US Inflation Report Next

Canadian Dollar Edges Higher, US Inflation Report Next

The Canadian dollar has edged higher in the Tuesday session. Currently, USD/CAD is trading at 1.2828, down 0.22% on the day. On the release front, there are no Canadian releases on the schedule. The US will release PPI, an important inflation indicator. On Wednesday, the Federal Reserve is expected to raise rates to a range between 1.25% to 1.50%. As well, the US releases CPI reports.

The markets are expecting a quarter-point rate hike from the Fed later on Wednesday. Even though this move has been priced in, rate hikes tend to trigger a surge of confidence among investors, and also makes the US dollar more attractive against its rivals. Traders should therefore be prepared for the US dollar to record gains after the rate announcement. Another rate hike is expected in January, with fed futures pricing a rate hike at 87%. The Fed has hinted that it could raise rates up to three times in 2018, and this upward movement in rates will likely propel the US dollar upwards. The US labor market remains at full capacity and various sectors in the economy are reporting a lack of workers. Still, this has not translated into stronger wage growth, despite predictions from Janet Yellen and other Fed policymakers that a lack of workers is bound to push up wages.

Canada’s economy has been sending mixed messages of late, so strong housing data last week was welcome news. On Friday, Housing Starts in November jumped to 252 thousand, well above the estimate of 214 thousand. This marked the strongest reading since March. On Thursday, Building Permits posted a strong gain of 3.5%, crushing the forecast of 1.7%. Meanwhile, investors are keeping a close eye on the Bank of Canada, which held rates steady at 1.00% last week. The BoC next meets in mid-January, and could find itself sandwiched between rate hikes south of the border. If the Fed does raise rates in December and January, as expected, the BoC will be under pressure to follow with a rate hike of its own, or risk having the Canadian dollar lose ground to the greenback.

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