The Canadian dollar has recorded small gains in the Thursday session. Currently, the pair is trading at 1.2318, up 0.02% on the day. On the release front, there are no major Canadian events. Over in the US, there are two key events. Unemployment claims are expected to rise to 237 thousand, and the markets are forecasting that ISM Manufacturing PMI will slow to 58.7 points. On Friday, the focus will be on US job reports, with the release of wage growth, nonfarm payrolls and the unemployment rate.
Will NAFTA survive past March? Negotiators are working against a self-imposed deadline to wrap up talks by March, with limited progress. The latest round of negotiations over NAFTA ended in Montreal last week, and there were no breakthroughs. Still, the sides continue to talk, and a Merrill Lynch has lowered the odds of the United States leaving the pact to 25 percent. The US has demanded far-reaching concessions from Canada and Mexico, such as shifting more auto production to the US. Canada and Mexico are strongly opposed to the US demands, but both economies would take a sharp hit if NAFTA is terminated. At the same time, many US businesses don’t want to blow up NAFTA and are pressuring President Trump to remain in the trade pact. The next round of negotiations is scheduled for late February in Mexico.
The Federal Reserve held the course on interest rate policy on Wednesday, as expected. In the rate statement, policymakers said that they expected the economy to continue to expand at a moderate pace and that the labor market would remain strong in 2018. What was more noteworthy was that the Fed predicted that inflation would rise to the Fed’s 2 percent target this year. This marks an upgrade in the inflation forecast, as the December statement said that inflation was expected to "remain somewhat below 2 percent." Higher inflation is likely to open the door to tighter monetary policy, and the Fed appears on track for three, or even four rate hikes in 2018, assuming that the US economy remains strong. This policy meeting was the last under Janet Yellen, as Jerome Powell will take over as Fed chair on February 3. The slightly hawkish tone of the rate statement has raised the odds of a rate hike to 83% when the Fed next meets in March.