Suggestions of an interest rate hike lead to Canadian Dollar strength (Daniel Wright)

GBP EUR Trades Above 1.18 After Weak ZEW Data

We have seen a good period of strength for the Canadian Dollar today following on from comments by the Bank of Canada Governor Stephen Poloz, suggesting that we may see an interest rate hike for Canada sooner than had first been expected.

The central bank mentioned in their comments that they now believe that interest rate cuts which were made in 2015 have seemingly done their job and that the economy is now starting to pick up at a good solid pace.

The chance of an interest rate hike coming this year has now risen from 22% last week to 72% at present, which has led to the Canadian Dollar gaining strength.

An interest rate hike is generally seen as positive for a currency as it makes that currency more attractive to investors and an interest rate cut will usually be seen as negative. With the markets moving on rumour as well as fact the mere fact that we have seen a hint towards a hike has led to the Canadian Dollar benefiting and gaining ground against most major currencies.

In my view, I would not be surprised to see this run continue in the short term but I do not see this becoming the start of a long term trend.

Tomorrow will be key as we have the release of the Federal Reserve interest rate decision in the States which will also be key for where we see the Canadian Dollar heads next, as it will impact on global attitude to risk.

Apart from that we are fairly quiet on the data front this week for the Canadian Dollar but be sure that there will be surprises that crop up that impact exchange rates as always.

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