The Bank of Canada (BoC) is expected to hike interest rates by a quarter of a percent at their next interest rate decision meeting at 3pm on Wednesday. The current interest rate is 1.5% so if the expected rate hike takes place the base rate will become 1.75%, which would be the highest level they’ve been since 2008.
As markets are expecting the increase this week, I think there will be more market movement for CAD exchange rates if the hike doesn’t take place. Last week we saw a sell-off of CAD after data released on Friday showed surprise drops for Canadian Inflation and also Retail Sales figures. The decrease in CAD value is likely down to a drop in expectations of a rate hike this week, as both area’s of the Canadian economy are tied into monetary policy and the pressure to hike rates has been lessened somewhat by Friday’s releases.
Moving forward, whether the hike takes place or not and also the pressure on oil prices is likely to continue to influence the loonie’s value. It’s been highlighted recently that the price of oil isn’t quite as influential towards CAD’s value as it has been historically, which has allowed some economists to look past the recent dip in oil’s value when predicting the loonie’s value.
Economists are also penciling in up to 4-rate hikes from the BoC over the next year so those of our clients and readers hoping for a stronger loonie should be aware of this. The new North American Free Trade Agreement is also awaiting ratification, another potential market mover for the currency across the board of major currency pairs.
Those monitoring the GBP/CAD rate should pay close attention to Brexit updates with some even suggesting that UK PM Theresa May’s position could come under pressure this week. There hasn’t been as much progress made by May’s negotiating team as expected and hopes of a Brexit deal between the UK and the EU being agreed soon have dropped over the past week.
If you wish to be updated in the event of a major market movement for the currencies discussed today, do feel free to register your interest with me. I’ll be more than happy to get in touch personally.