The Canadian dollar continues to have an uneventful week. In the Wednesday session, USD/CAD is trading at 1.2523, up 0.02% on the day. We could see some movement from the pair in the North American session, as Canada releases Manufacturing Sales. The markets are braced for a third straight decline, with an estimate of -0.1%. The US will release two key housing indicators. Building Permits is expected to slow to 1.25 million, and Housing Starts are forecast to remain unchanged at 1.18 million. On Thursday, the US releases unemployment claims and the Philly Fed Manufacturing Index.
With the Canadian economy performing well, could another rate hike be in the cards? The Bank of Canada surprised with a rate hike in September, but policymakers are concerned over tensions about NAFTA. Talks between Canada, the US and Mexico over re-negotiating NAFTA have floundered, raising the possibility that Donald Trump will scrap the agreement. The BoC would prefer not to raise rates until the NAFTA negotiations are settled. However, the Federal Reserve is widely expected to raise rates in December and the BoC will be under pressure to follow suit and protect the Canadian dollar.
With the Federal Reserve dropping strong hints that it will raise rates in December, the odds of a December hike are currently at a sizzling 91 percent. Just one month ago, the odds were 50-50 that the Fed would raise rates at the December meeting. Low inflation levels have been a key reason that the Fed has been reluctant to raise rates, but Fed Chair Janet Yellen and other policymakers have expressed optimism that inflation will move closer towards the Fed’s inflation target of 2 percent. The markets will be looking for some clues about the Fed’s rate plans, as FOMC members William Dudley and Robert Kaplan speak on Wednesday.
