USD/CAD has posted considerable losses in the Thursday session, erasing the gains seen in the Wednesday session. Early in the North American session, the pair is trading at 1.2990. On the release front, Unemployment Claims dropped to 241 thousand, short of the forecast of 251 thousand. There are no Canadian releases for the remainder of the week. US employment data will be in focus on Friday, as the US releases Nonfarm Payrolls, Average Hourly Earnings and the unemployment rate.
As expected, the Federal Reserve didn’t make any moves on Wednesday, leaving the benchmark interest rate at 0.50%. The markets were hoping to glean something from the rate statement, but the Fed didn’t have much to add. The statement was upbeat about the economy and said that inflation continues to move towards the Fed’s target of 2 percent. Analysts expect the Fed to raise rates two or three times in 2017, with the odds of a rate hike by June priced in 70%. However, Donald Trump remains an enigma, as his economic policy remains unclear – Trump has promised substantial fiscal spending and tax cuts, but hasn’t provided any details. Just a few months ago, a red-hot economy had led to the Fed loudly hinting at gradual rate increases in 2017. However, with the markets showing increasing uneasiness about the new Trump administration, the Fed will likely change gears and adopt a wait-and-see attitude, watching what bills Trump gets through Congress and how the economy responds.
January was kind to the Canadian dollar, as USD/CAD slipped 2.8% percent. Earlier this week, USD/CAD dropped to 1.2965, the pair’s lowest level since September 5. Will the Canadian dollar’s rally continue into February? There was positive news about the Canadian economy on Tuesday, with the release of Canadian GDP. The economy expanded 0.4% in November, rebounding from a 0.3% decline in October. This figure beat the forecast of 0.3%, and the Canadian dollar moved higher. However, there could be trouble ahead for the Canadian economy. A report by the National Bank Financial Markets says that if Donald Trump’s administration implements protectionist policies, Canada’s GDP could drop as much as 1.5 percent. Trump has declared he will renegotiate the NAFTA trade agreement, which could have negative repercussions for the Canadian economy. With 70% of Canadian exports headed for the US, any protectionist moves by Trump could unnerve the markets and send the Canadian dollar lower.