Michael Woolfolk Continue Quotations

While the US trade deficit showed an unexpected improvement in February, any lasting market enthusiasm was firmly misplaced. Energy prices continue to rise while China remains resistant to further currency flexibility.

The monthly GDP report fed into underlying CAD strength. With political risk subsiding, rising interest rates and fundamental economic strength are prompting CAD buying, which is expected to continue through year-end as USD/CAD heads for the 1.10 mark.

February's data support the view that the U.S. labor market remains strong, particularly on the services side, with unemployment solidly below the 5% level. The Fed is likely to continue raising rates for the foreseeable future.

If unemployment dips any lower, that may indicate some wage inflation and the Fed will likely continue to raise rates.

The dollar will remain supported for the time being so long as central banks overseas continue to intervene to keep their currencies weak against the U.S. dollar.