The Bank of Canada have released a statement this week stating that they are going to be reviewing their monetary policies and potentially making some major changes. The target inflation rate for the past 23 years has been 2%, but it is thought that the bank may be planning on raising this target rate to 3 or 4%. This talk of change in the Central Bank’s policy is still in its infancy, and no details of the potential changes have yet been released, however this could have an impact on CAD rates in the future.
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If the BoC decide to change the way they approach monetary policy and inflation, this could have an impact on interest rate setting policy. The BoC are expected to continue raising rates at the beginning of next year, but if their stance changes then we could see the CAD weaken.
Tomorrow there are a number of key data sets released from the Canadian economy that could have an impact on the Loonie’s value. Retail sales figures for September are set to show an improvement so this could see the CAD make gains against the pound. There are also inflation numbers due to be released, and if these continue to stay above the Bank’s current target of 2% then this increases the likelihood of an interest rate hike in Q1 of next year which could also strengthen the CAD.
The pound has struggled this week against most major currencies, but has seen a steady climb against the Canadian dollar despite the pressure that Theresa May’s Brexit deal is facing. This sell off of the Canadian dollar can be partly attributed to the slump in oil prices we have seen this week and indeed throughout November. The value of the pair are very closely linked due to the Canadian economy’s dependence on its largest export. The price per barrel of Crude oil has fallen so dramatically this month that it has wiped out all of the gains made in 2018. There are currently fears that we are entering a period of oversupply, with Saudi Arabia raising their output. Donald Trump has done little to curb this drop in Brent Crude value, stating that he would like to see the price of oil drop further still.
With so much uncertainty surrounding Brexit and the damage this is having on the pound, if you have a GBP/CAD requirement then buying now could be a sensible option given that rates are remaining fairly stable. Speak to your account manager here to discuss the options available to you and stay up to date with the latest market developments.
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