CAD strengthens despite keeping rates on hold

Yesterday the Bank of Canada kept interest rates on hold at 0.5% and despite dovish comments about the future risks to the economy due to global uncertainty, the CAD gained significant ground against the Pound following the release. One of the reasons for the Loonie’s gains could be down to the fact that oil prices made gains to the highest levels we have seen since the beginning of February, with the price of a barrel of Brent Crude Oil comfortably above $55 per barrel.

The Canadian economy is heavily reliant on its exports of Crude Oil and the higher the price per barrel, the better for the economy.

We did see the Pound fall against all of its major counterparts yesterday however, so I believe that the CAD’s gains were mainly due to Sterling weakness rather than any significant strength in the Canadian economy. There were talks of a potential interest rate cut in the future in Canada due to global uncertainties and a slack in wage growth throughout the year, so it seems unlikely that this would have lead to the Canadian Dollar strengthening.

The House of Lords rejection of the governments Brexit bill last night has done little to help the Pound recover any of its losses against the CAD and this extra obstacle is likely to grab the headlines for the rest of the week. As a result of the added uncertainty this could cause I would not be surprised to see further losses for the Pound today against the Loonie as there is little data from the UK today or tomorrow that could turn the Pounds fortunes around.

How Could GDP figures today affect CAD?

There are also GDP figures released from the Canadian economy for Q4 of 2016 this afternoon and these have the potential to shift the market. There is a sharp drop o the figures expected compared to the previous quarter so this could weigh on the CAD’s value, but I personally believe that the market will be more dictated by developments from the House of Commons throughout today’s trading.

If you have an upcoming Canadian Dollar requirement, you may benefit from talking with one of our experts this week. With the UK Government expected to invoke Article 50 as early as next week GBP/CAD may post further losses ahead. Call us on 01494 725 353 to discuss in more detail.

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