Friday January 11th, 2019

Jobless claims fell yesterday to 216,000 below consensus and USD dollar rallied strongly from recent weakness. However, thanks to the Feds new policy towards a rethink of last year’s relentless interest rate hikes the trend in the USD will now in general be towards weakness, which the market is experiencing this morning. There will be a lot of interest in today’s announcement for December’s Year-over-Year inflation rate which is expected to be lower at 1.9%. Despite oil’s recent rally over the last week the decline over the last three months is expected to show up in this number. This number has been bouncing around 2%, which is right in line with the Fed’s policy guideline, which is to maximize economic growth while keeping inflation below 2%. Inflation is a major concern for the Fed not just because of some random policy but because of the belief that inflation destroys the wealth of a country along with a declining currency. Anyone who questions this belief need merely look at Venezuela with a worthless currency and an inflation rate of 1.35 million%. In Canada there are no economic numbers due until next Friday, but the currency remains strong due to the week’s rebound in oil prices. With the rally being so strong up almost 3 cents over the last week reaching a high of 0.76 CAD/USD it wouldn’t be a surprise to see a fall back to 0.75 over the next few days. Similar to the Fed the Bank of Canada has increased its policy rate three times this year from 1.00% to its current level of 1.75% and it hasn’t had as much of an effect on CAD like the price of oil.