The Canadian dollar has edged lower on Thursday, erasing the gains seen a day earlier. Currently, USD/CAD is trading at 1.3336, up 0.23% on the day. On the release front, Canada releases ADP nonfarm payrolls. In the U.S., the Philly Fed Manufacturing Index is expected to rebound with a gain of 4.6, after a rare decline in January. Unemployment claims are projected to dip to 226 thousand. On Friday, Canada releases CPI and retail sales data, so traders should be prepared for movement from USD/CAD.
The Federal Reserve has been in dovish mode since January, but the pessimistic stance at the Wednesday policy meeting was a surprise. The Fed’s rate outlook (dot plot), which is released each quarter, showed that a majority of FOMC members expect no rate hikes in 2019. This was in sharp contrast to the previous quarter’s forecast, in which the FOMC projected two hikes this year.
The rate statement was markedly dovish, stating that economic activity “has slowed”. Policy makers singled out slower growth in household spending and business investment and noted that inflation has decreased due to lower energy prices. The Fed also announced that it would stop reducing its balance sheet by $50 billion a month. This move is a loosening of policy and is intended to stimulate the economy. The new Fed forecast projects GDP growth of 2.1%, down from 2.3% in December.
The Bank of Canada held the benchmark rate at 1.75% at its last meeting, but the bank’s stance has become more dovish in response to the economic downturn, which is deeper than policymakers estimated. The most recent rate statement noted that the economy could continue to require stimulus and said there was “increased uncertainty” regarding the timing of future rate hikes. If economic conditions remain soft, the BoC may have to consider a rate cut to stimulate growth. Weak oil prices and the global trade war have hurt the Canadian economy and dampened the critical export sector, and the Canadian dollar, which is down 1.2% in March, could face further headwinds.
