The Canadian dollar has edged higher in Wednesday trade. Currently, the pair is trading at 1.3415, up 0.25%. On the release front, Canada posted a larger trade deficit than expected. The deficit increased to C$4.2 billion, higher than the forecast of C$3.5 billion. There are no major U.S. events on the calendar. On Thursday, the U.S. releases Final GDP and unemployment claims.
Canadian bonds showed an inverted yield curve on Monday, after U.S. Treasuries showed the same pattern on Friday. This has spooked investors, as the inverted yield curve is a sign of a recession. The Bank of Canada is already in a dovish stance and could follow the Fed and freeze rates for the rest of the year. If the economic slowdown continues, policymakers may have to consider a rate cut in order to stimulate the economy.
After a sharply dovish Fed meeting last week, risk apprehension has risen considerably. This could mean headwinds for the Canadian dollar, a minor currency. The Fed said that it had no plans to raise rates before 2019, and also lowered its growth forecast for 2019 to 2.1%, down from 2.3% in December. On Friday, the spread between 3-month and 10-year Treasury notes turned negative, signifying an inverted yield curve. All eyes will be on U.S. Final GDP, which will be released on Thursday. If GDP misses the forecast of 2.4%, investors could get jittery and dump Canadian dollars in favor of safe-haven assets.
