The Canadian dollar continues to rally, and has recorded five straight winning sessions. Currently, USD/CAD is trading at 1.2616, down 0.30%. There are no Canadian releases this week. In the US, today’s key event is unemployment claims, which is expected to drop to 240 thousand.
USD/CAD is down 1.9% since December 18, as the Canadian dollar has improved to its highest level since late October. Canada’s GDP in October disappointed, with a flat reading of 0.0%. Still, recent consumer indicators have been strong. 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% in November, marking a five-month high. This edged above the estimate of 0.2%. The Canadian dollar has enjoyed an excellent December, but could face some headwinds next month, as the Federal Reserve is widely expected to raise interest rates at its January meeting, following the rate hike earlier in December.
With the US economy expanding above 3% in the third 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%, which could give a boost to the US dollar. If the economy continues its impressive pace of growth above 3%, the Fed could raise rates up to four times in 2018. Despite strong economic conditions, the Federal Reserve’s inflation target of 2.0% remains elusive. Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes despite low inflation.
