The Canadian dollar continues to have an uneventful week. In Wednesday’s North American session, the pair is trading at 1.3263, down 0.03% on the day. On the release front, there no Canadian events. With no major indicators in the U.S., traders can expect USD/CAD to continue to have a quiet day. On Thursday, Canada releases ADP nonfarm payrolls, while the U.S. posts unemployment claims and the Philly Fed Manufacturing Index.
It’s been a stellar January for the Canadian dollar, which has jumped 2.8%, erasing the losses from a dismal December. Will the rally continue? Last week, the Bank of Canada lowered its growth forecast for 2019 to 1.7%, down from 2.1%. The bank also noted concerns over lower oil prices and the global trade war, both of which have hurt the economy. Still, the BoC expects economic activity to strengthen in the second half of the year, so it appears unlikely that the BoC will raise rates in the first quarter.
The Federal Reserve has made a U-turn on monetary policy, but by how much? There is a large discrepancy between Fed forecasts and market expectations, which could result in volatility in the currency markets, as traders try to figure out what the Fed will do in 2019. The most recent projections from individual policymakers in the Federal Open Market Committee (FOMC) stands at two rate hikes this year, but the markets are expecting the Fed to hold pat and not raise rates in 2019. Moreover, the markets have priced in a rate cut before the end of the year at 28 percent. On Monday, former Fed Chair Janet Yellen said that she expected the Fed to take a breather, saying that it’s ‘very possible’ that the Fed has made its last hike of this cycle.
