The Canadian dollar continues to improve, and has posted slight gains in Friday trade. Currently, USD/CAD is trading at 1.2720, down 0.14% on the day. On the release front, it’s a busy day on both sides of the border. Canada releases its monthly GDP report, which is expected to remain unchanged at 0.2%. In the US, there are three key events – Durable goods reports are expected to improve, but the markets are braced for softer readings from New Home Sales and UoM Consumer Sentiment.
The Canadian currency is on track for its strongest weekly gains since September, after jumping 0.75% against the US dollar on Thursday. Canadian consumer numbers boosted the loonie, and pushed it to its highest level since December 12. Retail Sales sparkled with a gain of 0.8% in October, well above the forecast of 0.4%. This was the indicator’s highest gain since April. As well, CPI improved to 0.3%, a five-month high. This edged above the estimate of 0.2%. If GDP follows suit and also beats the forecast, the Canadian dollar rally could continue.
Christmas has come early for President Trump, as he celebrated with Republican lawmakers the new tax reform bill. Earlier in the week, both branches of Congress passed the legislation, although the votes were tight, as all Democrats voted against the bill. It’s a major victory for Trump, as one of his key campaign pledges was tax reform, and the new legislation marks the first overhaul of the tax code since the Reagan administration.
The US economy received an excellent report card on Thursday, as Final GDP posted a strong gain of 3.2%, just shy of the Preliminary GDP reading of 3.3%. With the US economy posting growth above 3% for another quarter, the Federal Reserve remains on track for another rate hike in January. The CME Group has pegged the odds of a January hike at 98%, and if the economy continues its current pace, the Fed could raise rates up to four times in 2018. Inflation remains a sore point, as the Fed target of 2.0% remains well out of reach. Fed Chair Janet Yellen and other FOMC members have said they expect that the strong labor market will lead to higher inflation, but the Fed has demonstrated that it is willing to press ahead with rate hikes despite low inflation.
