The Canadian dollar has posted slight gains in the Thursday session. Currently, USD/CAD is trading at 1.2605, down 0.19% on the day. In economic news, Canadian ADP Nonfarm Employment Change posted a sharp gain of 42.8 thousand. In the US unemployment claims ticked lower to 232 thousand, close to the estimate of 230 thousand. As well, the Philly Fed Manufacturing Index improved to 23.2 thousand, easily beating the estimate of 20.8 points. On Friday, Canada releases CPI, which is forecast to drop to 0.4%.
There were no surprises from the Bank of Canada on Wednesday, as the bank maintained the benchmark rate at 1.25 percent. The BoC was in cautious mode in the rate statement, noting that growth in the first quarter was weaker than the bank had forecast, but that it expected better news in the second quarter. Speaking after the statement, BoC Governor Stephen Poloz said that “the economy is in a good place,” but added that “interest rates are very low”. This is a clear signal that the BoC plans to raise rates in the near future, and many analysts are predicting a rate hike in July. Canada’s employment picture has been a bright spot, underscored by an excellent ADP nonfarm payrolls report.
The protectionist US administration has reopened the NAFTA agreement, threatening to walk away if its demands for major concessions in favor of the US are not met. NAFTA is a crucial component of the Canadian economy, and the loss of NAFTA would be a nightmare for Canada. As well, the Federal Reserve plans a number of rate hikes in 2018, and if the BoC does not raise rates on its end, the Canadian dollar could fall sharply against a US currency that would be more attractive to investors.
