The Canadian dollar has posted slight gains in the Wednesday session. Currently, the pair is trading at 1.3145, down 0.19% on the day. On the release front, Canada releases a host of inflation indicators, led by CPI. The key inflation indicator is expected to gain 0.2%, after two straight declines. The U.S. posts minor manufacturing and housing reports, but the focus will be on Fed Chair Powell’s testimony before a congressional committee. On Thursday, the U.S. will post Advance GDP and unemployment claims. Canada will release current account and the raw materials price index.
There were no surprises from Powell’s testimony before a senate committee on Tuesday, as Powell preached patience with regard to changes in interest rates. Powell stated that the Fed was in “no rush to make a judgment” and made reference to “conflicting signals in the economy”. The labor picture remains bright, with strong hiring and low unemployment. At the same time, consumer spending and housing data have been soft. The markets are expecting the Fed to remain on the sidelines in May and June, meaning that the first hike of 2019 will not come before the second half of the year.
Will the Bank of Canada raise rates in the first half of 2019? Canadian numbers have been mixed, making it difficult for the Bank of Canada to step in and raise rates for the first time in 2019. Similar to the Federal Reserve, the BoC was aggressive in 2018, but has applied the brakes in 2019. The Bank hiked rates three times last year, but has since stayed on the sidelines, with the benchmark rate pegged at 1.75%. It’s unlikely that the bank will make any rate moves unless the Canadian economy shows clear signs of gathering steam. Consumer spending data in December was a disappointment, with retail sales and core retail sales posting declines. If inflation remains weak, there will be little pressure on the bank to raise rates in the next few months.