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Canadian Dollar Steady, Building Permits Crushes Estimate

The Canadian dollar has posted small losses in the Wednesday session. Currently, the pair is trading at 1.2515, up 0.17% on the day. On the release front, Canadian Building Permits posted an excellent gain of 4.8%, compared t0 the estimate of 2.1%. There are no key releases out of the US. On Thursday, the US publishes unemployment claims.

It’s been a volatile week on the stock markets, and the US dollar has taken advantage, posting broad gains. The Canadian dollar has lost ground this week, down close to 1.0%. On Monday, the Dow Jones posted its biggest one-day loss on Monday. The markets were back in green territory on Tuesday. A key factor in the stock market slide was strong employment numbers on Friday, as nonfarm payrolls and wage growth reports beat their estimates. Investors shied away from the stock markets, concerned that the sharp data could lead to higher inflation, which in turn would result in more rate hikes this year. Higher interest rates make the US dollar more attractive for investors, at the expense of other currencies.

Canadian indicators disappointed on Tuesday. Canada’s trade deficit widened from C$2.5 billion to C$3.2 billion, well above the estimate of C$2.3 billion. The export sector has been steady, but uncertainty over NAFTA is a dark cloud over the economy, and exports could suffer if the trilateral free trade pact is not renewed. The US has threatened to leave the pact if the Canada and Mexico do not agree to major concessions, such as increasing the percentage of US content in auto parts produced under NAFTA. Elsewhere, Canadian Ivey PMI continues to point to expansion, but slowed to 55.2, down from 60.4 in the previous release. This was well off the forecast of 60.7 points.

The Janet Yellen era is over at the Federal Reserve. On the weekend, Jerome Powell took over as chair, replacing Yellen. On Friday, Yellen waxed optimistic about the economy, saying that strong growth, a red-hot labor market and increased wage growth would require the Fed to gradually raise interest rates. Powell is expected to continue to Yellen’s policies, so the markets are not expecting any dramatic shifts. However, the massive US tax cut will have a strong impact on the US economy, and the markets will be looking to the Fed for guidance. If the Fed sounds optimistic about the tax reform package, the US dollar could move higher.

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