The Canadian dollar is steady in the Thursday session. Currently, the pair is trading at 1.3168, up 0.09% on the day. On the release front, Canada releases current account, with the deficit expected to widen to C$14.0 billion. In the U.S., Advance GDP is projected at 2.2%, after a gain of 2.3% in the fourth quarter. Chicago PMI is expected to rise to 57.3 and unemployment claims is forecast to rise to 221 thousand. On Friday, we’ll get a look at ISM Manufacturing PMI and the UoM Consumer Sentiment.
Will 2019 be the year of the dove for the Federal Reserve? After an aggressive 2018, when the Fed hiked rates four times, the Fed is yet to make a move in 2019. The dovish stance was reinforced by Fed Chair Powell’s testimony on Capitol Hill on Tuesday and Wednesday. Powell preached patience with regard to changes in interest rate levels. The Fed chair stated that the Fed was in “no rush to make a judgment” and made reference to “conflicting signals in the economy”. The labor picture remains bright, with strong hiring and low unemployment. At the same time, consumer spending and business investment have been soft. Powell was optimistic about the U.S. economy, but said that the lower global growth and uncertainty over trade was weighing on the economy. The markets are expecting the Fed to remain on the sidelines in May and June, meaning that the first hike of 2019 may be on hold until the second half of the year.
Canada’s economic numbers have been mixed, making it difficult for the Bank of Canada to step in and raise rates for the first time in 2019. Similar to the Federal Reserve, the BoC was aggressive in 2018, but has applied the brakes in 2019. The Bank hiked rates three times last year, but has since stayed on the sidelines, with the benchmark rate pegged at 1.75%. It’s unlikely that the bank will make any rate moves unless the Canadian economy shows clear signs of gathering steam. Consumer spending data in December was a disappointment, with retail sales and core retail sales posting declines. If inflation remains weak, there will be little pressure on the bank to raise rates in the next few months.