The Canadian dollar has edged higher in the Wednesday session. Currently, USD/CAD is trading at 1.3221, down 0.20% on the day. On the release front, there are no Canadian events for a third straight day. In the U.S, CPI improved to 0.3%, its strongest gain since January 2018. Core CPI improved to 0.2%, matching the forecast. On Thursday, Canada releases ADP nonfarm employment change. The U.S. will publish retail sales, the Philly Fed Manufacturing Index and unemployment claims.
With the U.S economy firing on all cylinders, the markets are expecting the Federal Reserve to continue raising rates. This sentiment was reinforced by Janet Yellen, former Fed chair. Yellen said on Tuesday that she expected the Fed to raise rates three or four times in 2019. This means that we can expect rate hikes once a quarter in 2019, barring a sharp downturn in the economy. The policy of gradual increases is good news for the U.S dollar, as higher interest rates means that the greenback is more attractive to investors. The Bank of Canada has taken a page out of the Federal Reserve’s book, saying that its policy of gradual rate hikes will continue into 2019. The BoC will have to continue raising rates if the Canadian dollar is to hold its own against the strong U.S. dollar.
