The Canadian dollar continues to improve, and has posted considerable gains in the Wednesday session. Currently, USD/CAD is trading at 1.2644, down 0.33% on the day. On the release front, there are no Canadian events this week. In the US, there are two key indicators on Wednesday. The markets are expecting a strong release from CB Consumer Confidence, with an estimate of 128.2 points. Pending Home Sales is forecast to decline by 0.4%.
USD/CAD is down 1.9% since December 20, as the Canadian dollar continues to rally. The currency shrugged off a weak Canadian GDP report on Friday, which came in at 0.0%, shy of the estimate of 0.2%. There is plenty of slack in the Canadian economy, although red-hot growth south of the border has helped, as 75% of Canadian exports are sent to the U.S. The GDP release was a disappointment, but key consumer indicators beat their estimates last week. 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%.
The US economy received an excellent report card late last week, 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 100%, 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.