The Canadian dollar continues to trade quietly. In the Tuesday session, USD/CAD is trading at 1.2869, up 0.20% on the day. On the release front, Canada releases GDP, which is expected to rebound with a gain of 0.3%. Later in the day, Bank of Canada Governor will speak about household debt an event in Yellowknife. In the US, today’s key event is ISM Manufacturing PMI, which is expected to drop to 58.4 points. The focus will shift to US employment indicators in the latter part of the week, starting with ADP Nonfarm Employment Change on Wednesday. As well, the Federal Reserve will release a rate statement.
US President Trump has extended exemptions for steel and aluminum tariffs for Canada and Mexico for another 30 days. The exemptions come at a sensitive time, with the US, Canada and Mexico neck deep in negotiations over a new NAFTA trade agreement. The talks have made significant progress, but the critical auto pact remains a stumbling block. It is likely that a tentative agreement will be hammered out, perhaps later this month. The Bank of Canada has dropped strong hints that it plans to raise interest rates later this year, but policymakers would like the NAFTA issue to be resolved before the next rate hike.
The Federal Reserve will be on center stage on Wednesday when it concludes a 2-day policy meeting. The markets are expecting the Fed to maintain the benchmark rate at a range between 1.50% and 1.75%, and analysts will be keeping a close eye on the rate statement – a hawkish statement could propel the US dollar to higher levels. There is growing sentiment that the Federal Reserve will raise interest rates four times this year, although Fed policymakers have not changed their forecast of three increases in 2018. One scenario envisions the Fed raising rates once each quarter until the economy shows signs of slowing down. If inflation continues to move higher and economic conditions remain strong, the dollar should continue to perform well against its Canadian counterpart.
