Canadian Dollar Higher, Investors Eye US Jobless Claims

USD/CAD is down slightly in the Thursday session. Currently, the pair is trading at 1.3470, down 0.07% on the day. On the release front, Canadian Wholesale Sales are expected to post a gain of 0.4% after two straight declines. Canada will also release ADP nonfarm payrolls, which declined by 23.0 thousand last week. In the U.S., the Philly Fed Manufacturing Index is expected to rise to 15.1, while jobless claims are forecast to increase to 216 thousand. On Friday, there are key events on both sides of the border. Canada releases GDP and retail sales, while the U.S. will publish Final GDP, durable goods orders and consumer confidence.

The Federal Reserve delivered the goods as far as a rate hike, marking the fourth rate hike of the year. The benchmark rate is currently in a range between 2.25 and 250 percent. However, the U.S dollar is broadly lower on Thursday, as the markets had expected a more dovish message in the rate statement. There was speculation that the Fed would “compensate” investors with a very dovish statement, given that the markets have been in turmoil for weeks and the U.S. economy appears to be cooling down. However, the Fed seems bent on continuing to raise rates in 2019 – most significantly, policymakers did not remove the critical phrase “further gradual increases” from their statement. At the same time, the dot plot forecast was lowered for 2019, from three rate rises to two. This marks a U-turn for the Fed, as back in October, Fed Chair Jerome Powell talked about continuing to raise rates until the “neutral rate” range was met. This range has been somewhat unclear, allowing Powell to say on Thursday that the “lower end” of the range has been achieved.

Just a few months ago, the markets were predicting a “rate hike every quarter” for 2019, but such heady talk has disappeared, as Fed policymakers have responded to economic data which is pointing to slower growth. The policy of gradual rate hikes bears much of the responsibility for the volatility in the equity markets, and the message from the Fed that more hikes are coming will likely mean that the volatility will continue in December and into the New Year. This will likely translate into volatility for the Canadian currency, which is sensitive to the level of risk appetite on the part of investors.