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Briefing highlights

  • Loonie stronger on NAFTA news
  • What to expect from the Fed today
  • Markets at a glance
  • Facebook shares on decline again
  • Ontario Teachers takes stake in Ubisoft
  • BRP posts drop in profit, raises dividend

NAFTA buoys loonie

The Canadian dollar is stronger this morning, buoyed by what are seen as positive developments on the NAFTA front.

And we'll see what happens when the Federal Reserve releases its rate decision and updated projections this afternoon.

The loonie gained on a Globe and Mail report of progress in the North American free-trade agreement talks. As Adrian Morrow and Greg Keenan report, U.S. negotiators have dropped their demand on auto content rules.

"This was one of the more difficult obstacles to NAFTA renegotiation," said Adam Cole, RBC's chief currency strategist in London.

For now, that NAFTA progress "offers some relief, but we think dips in USDCAD will be brief and shallow," said Mark McCormick, North American head of foreign exchange strategy at TD Securities, referring to the U.S. versus the Canadian dollar by their symbols.

And, of course, that dip refers to the greenback against the loonie.

Next up is the Fed, which is widely expected to raise its benchmark interest rate by one-quarter of a percentage point, to a target range of 1.5 to 1.75 per cent.

That would mark the sixth increase in the federal funds rate since late 2015, as the U.S. central bank, now under its new chairman, Jerome Powell, continues to get back to normal after the extraordinary steps taken during the financial crisis.

It's what comes with that expected rate hike that markets will watch for, specifically whether Fed officials, in projections known as a "dot plot," expect three more increases this year or just two.

Markets expect three. They'll also watch for what the Fed sees as the long-term rate, which is akin to a neutral rate and is expected to go to 3 per cent from 2.75 per cent.

After the "initial noise dies down" today, the Canadian dollar could well gain further, said Bipan Rai, North America head of foreign exchange strategy at CIBC World Markets.

Along with the dot plot, the Fed will also release fresh economic projections.

"The data to date is fully supportive of further interest rate increases," said Paul Ferley, Royal Bank of Canada's assistant chief economist.

"Though GDP growth appears to have slowed in Q1, solid job gains and recent tax cuts are expected to keep growth at an above-potential pace going forward," he added.

"There is little indication that much if any slack remains in labour markets. The 4.1-per-cent unemployment rate is well below Fed estimates of its long-run 'full-employment' level. Wage growth and inflation have both shown further signs of firming. At the same time, the stance of monetary policy is still highly stimulative, with interest rates well below most estimates of longer-run 'neutral' levels."

Federal Reserve Chairman Jerome Powell testifies as he gives the semiannual monetary policy report to the Senate Banking Committee, March 1, 2018, on Capitol Hill in Washington.

Today also marks Mr. Powell's first post-meeting news conference, so the market will also pay attention to his tone.

Note, too, this bit of trivia from Michael Gregory, Bank of Montreal's deputy chief economist:

"Importantly, this will mark the 10-year anniversary of both the collapse of Bear Stearns and the last time the Fed's key policy rate was above the core PCE inflation rate," Mr. Gregory said, referring to a measure of personal consumption expenditure prices that strips out volatile energy and food costs.

"Of course, the real fed funds rate will still be negative employing headline PCE inflation (by a tiny bit) or either of the [consumer price indices], but this nevertheless represents a critical milestone in the policy normalization process."

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