The Canadian dollar has posted gains in the Friday session, erasing most of the losses sustained on Thursday. Currently, USD/CAD is trading at 1.3030, down 0.42% on the day. On the release front, Canadian consumer indicators are in the spotlight and traders should be prepared for volatility from the Canadian dollar during the North American session. After a shocking decline in August, CPI for September is expected to gain 0.1%. Retail Sales is forecast to remain at 0.3%, but Core Retail Sales is expected to drop sharply to just 0.1%, compared to 0.9% in August. In the U.S, there are no key releases. Existing Home Sales is expected to drop to 5.29 million.
Employment numbers are important leading indicators of consumer spending, and there was good news on Thursday, ahead of key Canadian retail sales reports on Friday. ADP nonfarm payrolls jumped 28.8 thousand in September, up from 13.6 thousand a month earlier. Will the retail sales numbers also point higher? The Bank of Canada will be carefully monitoring the retail sales and CPI releases, ahead of a policy meeting next week. The markets are expecting the BoC to raise rates by a quarter-point, which would mark the third rate increase in 2018. With Canada, the U.S and Mexico about to enter the USMCA, which replaces the NAFTA pact, the last obstacle for the BoC on the path to normalization has been removed and analysts are now expecting three rate hikes in 2019, up from a forecast of two hikes just a few months ago.
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meeting, the Fed removed the phrase “the stance of monetary policy remains accommodative”, which was considered outdated, given the policy of steady rate hikes.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.
