This week, the Bank of Canada chose to keep the interest rate on hold at the first meeting of the year, sighting oil uncertainty and the domestic housing markets as reasons to be cautious. Canadian interest levels have in the past tried to stay close to their neighbours in the US however following an aggressive hiking policy from the Federal Reserve Bank the Bank of Canada have fallen 1.25% behind.
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Last year they raised rates three times however any further hikes are off the cards for now as Governor of the Bank Stephen Poloz sighted the uncertainty to personal debt levels if interest rates were to continue increasing. There was unsurprisingly also reference made to the trade wars affecting the globe with Donald Trump’s policies providing a headwind, preventing the Bank of Canada from being confident in making any changes at the moment.
Some analysts are however slightly more optimist than the Central Bank suggesting that the Canadian economy is in a good place and there could be as many as three rate hikes in 2019. That being said there is also just as many who aren’t convinced the economy is going to re-accelerate any time soon.
At the end of 2018 there were a couple of false starts for the price of a barrel of oil which is Canada’s largest export. As the cost of oil increases, the value of the Canadian dollar tends to also improve. Oil has been one of the main talking points globally with over-supply and a shortage of demand which has forced the value down and up.
This has been reflected in the GBP/CAD exchange rate which has bounded between 1.75 and 1.66 for over 6 months. A resolve in Brexit may bring the rate back toward the 1.80 level, however any boost in oil or a rate hike in Canada could see us nearer 1.60 by the middle of this year.
There is a quiet week of data next week until Friday when the Consumer Price Index data for Canada is released. There is expected to be a small improvement of the year on year level of 0.1% taking the level to 1.8%, any improvement on the expected and there could be a small boost for the Canadian dollar.
CAD is very much at the mercy of external factors being a commodity currency. Over the next few weeks and months the movements of global markets and particularly oil are going to continue having a major effect. It’s always important to make sure your trader knows about your requirements as they will be able to help you maximise your transfer.
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