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Canadian Dollar Lower after Hawkish Fed minutes

The Canadian dollar has ticked lower in the Thursday session, after recording considerable losses on Wednesday. Currently, USD/CAD is trading at 1.3044, up 0.15% on the day. On the release front, Philly Fed Manufacturing Index is expected to dip to 19.4 points, while unemployment claims are forecast to drop to 211 thousand. Canada will release ADP payrolls. On Friday, Canadian consumer indicators will be in the spotlight, with the release of CPI and Core Retail Sales.

The U.S dollar is broadly higher on Thursday, after a hawkish tone from the Federal Reserve minutes. The minutes indicated that a majority of members want to continue raising interest rates until the U.S economy shows signs of slowing down. However, the duration of a tighter policy remains unclear, as the minutes noted that “there is considerable uncertainty surrounding all estimates of the neutral federal funds rate.” This would likely be around the 3 percent level, which will not be reached until the second half of 2019, as the Fed has indicated it will raise rates three times next year. At the September meeting, the Fed removed the phrase “the stance of monetary policy remains accommodative”, which was considered outdated, given the policy of steady rate hikes. As rates approach the “neutral rate”, we could see further changes in language at upcoming policy meetings.

The Bank of Canada is widely expected to raise rates by 25 basis points at next week’s policy meeting. The BoC business survey showed strong optimism in the business sector. The poll found that businesses expect higher sales for both domestic and foreign customers. As well, companies reported increased investment and hiring. With the economy performing fairly well, the BoC has room to raise interest rates and keep pace with the Federal Reserve, which raised rates in September.

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