The Canadian dollar is lower in the Friday session, erasing the gains seen on Thursday. Currently, the pair is trading at 1.2305, up 0.31% on the day. On the release front, the US will release key employment numbers, and the numbers could affect the movement of USD/CAD. Wage growth is expected to edge downwards to 0.2%. The markets are forecasting that nonfarm payrolls will jump to 181 thousand. The unemployment rate is expected to remain pegged at 4.1%. We’ll also get a look at UoM Consumer Sentiment, which is expected to slow to 95.0 points. There are no Canadian releases to wrap up the week. On Thursday, Canadian Manufacturing PMI pointed to stronger expansion in January, climbing to 55.9 points. This marked the strongest reading since April 2017.
The sixth round of NAFTA talks ended in Montreal last week, with little progress to report. Negotiators are working against a self-imposed deadline to wrap up talks by March, with limited progress. Still, the sides are at least talking, and a Merrill Lynch report 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. Bank of Canada Governor Stephen Poloz recently noted that the uncertainty over NAFTA keeps him awake at night, and the Canadian dollar will likely remain under pressure while the negotiations continue.
There were no dramatic announcements from the Federal Reserve on Wednesday, and EUR/USD showed little movement in the Wednesday session. The Fed held the course on monetary policy, with the benchmark rate remaining between 1.25%-1.50%. 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.
