Economic Highlights for the week of January 14, 2011

United States  

• Economic data were sparse early in the week, but equities still performed well following some successful debt auctions in Europe 

• By the week’s end, markets turned their attention to a torrent of data releases including retail sales, industrial production and CPI 

• However, the releases offered few major surprises, and the market’s reaction was muted 

• The releases did however signal that as some sectors of the economy – including manufacturing and consumer spending – continue to press forward, price pressures and Eurozone worries remain an ever present challenge to the recovery. 


• The Canadian dollar has showed some renewed strength through the first two weeks of 2011, rising past parity vis-à-vis the U.S. dollar, and appreciating against most major currencies. 

• The Canadian dollar may lose some steam as early as next week. The Bank of Canada will likely disappoint markets, which are expecting a rate hike as early as March. We anticipate the Bank will continue to communicate that interest rates will remain low for the immediate future. 

• The improvement in Canada’s trade deficit to $80 million, from $1.5 billion in November, and continued strength in commodity prices will likely keep the Canadian dollar in a firm trading range of $US 0.95-1.00. 

Canada: Upcoming Key Economic Releases 

With the Canadian economy unfolding largely as expected, there has been little to compel the Bank of Canada into action. Moreover, several of the risks that the Bank highlighted at the last Fixed Announcement Date (FAD) have become less pronounced. So it should be no surprise to find the Bank remaining on the sidelines next week. 

The focus will, however, be on the accompanying communiqué. With the release of the January Monetary Policy Report (MPR) on Wednesday, the Bank will also have the opportunity to update their forecasts and provide a lengthier assessment of their outlook for the global economy. 

While we anticipate a more constructive 2011 outlook for the United States, the Bank will be appropriately circumspect about its impact on Canadian growth and inflation. The persistent strength in the Canadian dollar as well as the impact of higher commodity prices on inflation in emerging market economies is expected to be identified as downside risks to the outlook. And although the revision to growth will introduce a hawkish tilt to the communiqué, we expect that there are still enough headwinds at play to compel the Bank to wait until July  before taking the overnight rate to 2.00% by the end of the year. 

Bank of Canada Interest Rate Decision* 

Release Date: January 18/11
Current Rate: 1.00%
TD Forecast: 1.00%
Consensus: 1.00% 

Download the complete TD Economics Report Here 

Courtesy of:
TD Canada Trust
Marna Dueck
tel: (604) 725-0284

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