The Canadian dollar has started the new trading week quietly, as USD/CAD trades at 1.3370 in the Monday session. On the release front, the sole US release is Flash Services PMI, with the index expected to rise to 55.5 points. There are no Canadian events on the schedule. On Tuesday, Canada releases Wholesale Sales, with the estimate standing at 0.3%.
Federal Reserve Chair Janet Yellen has worked hard at improving transparency with the markets, and the Fed deserves full marks for getting out the message of a December rate hike. This marked the first rise since December 2015 and only the second rate hike since 2008. In its rate statement, the Fed sounded positive about the economy, noting that the
labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year
As well, the Fed revised upwards its forecast of US economic growth to 1.9% in 2016 and 2.1% in 2017, slightly higher than the Fed’s September estimates.
With the one rate hike in 2016 behind us, what’s next for the Fed? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections can change based on economic conditions, and the markets haven’t forgotten that after the hike in December 2015, the Fed said it expected to raise rates four times in 2015, but ended up raising rates only once.
As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. If Trump’s economic policies heat up the economy and boost inflation, we can expect a series of rate hikes starting early next year.
Monday (December 19)
- 14:45 US Flash Services PMI. Estimate 55.2
Tuesday (December 20)
- 13:30 Canadian Wholesale Sales. Estimate 0.3%
*All release times are EST
*Key events are in bold