Canadian GDP figures for January are due out tomorrow, which could cause the CAD to weaken if the figures don't show any improvement from the last release of 0.1%. This report looks at this and other factors that could affect the Canadian Dollar in the medium term. The table below shows the difference in CAD you could have achieved when buying £200,000.00 during the high and low points of the past month.
|Currency Pair||% Change||Difference on £200,000|
The Canadian Dollar has struggled against the Pound and US Dollar throughout March following from weaker Canadian economic data, owing mostly to the threats of the termination of the North American Free Trade Agreement (NAFTA). However, the Canadian Dollar managed to regain some of its losses this week against the Pound, US Dollar and Euro. Firstly, fears over the NAFTA agreement have eased slightly since US negotiators agreed to drop the stipulation that all cars imported from Canada or Mexico to the US should contain at least 50% American parts, which was proving to be one of the main disagreements stopping the successful renegotiation of NAFTA.
The second positive point to note for the Canadian economy, which in turn has helped the CAD to strengthen this week, was due to better than expected Inflation figures released on Friday, which showed a rise from 1.2% to 1.5% in February. This has led many investors to believe that another interest rate hike from the Bank of Canada may not be too far away. The BoC have raised interest rates three times since July last year, and the chances of seeing another rate hike from the bank in May have increased from 74% to 82%, according to economists.
However, the ongoing topic of the NAFTA renegotiation continues to weigh on the value of the Canadian Dollar, as a date for the next round of negotiations has not yet been released, and could be postponed until the end of the year if an agreement is not reached in April. This could heavily impact the value of the Canadian Dollar long term as markets to not react well to such uncertainty.
To put the consequences into perspective, some economists are predicting a fall of as much as 20% in the Canadian Dollar’s value if the NAFTA agreement is terminated. Clients with a Canadian Dollar requirement in the near future could benefit from being in close contact with their account manager here during this volatile time. Tomorrow sees the release of Canadian Gross Domestic Product figures (GDP) for January at 12.30pm. If these do not show any signs of improvement from the previous release of 0.1%, we could see CAD weakness, therefore clients selling Canadian Dollars may wish to move ahead of this release to capitalise on the gains made so far this week.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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