The Canadian Dollar weakened against the Pound at the end of last week due to positivity surrounding the UK and its progress with Brexit negotiations, and investor concerns that Canada could be left out of the revamped North American Free Trade Agreement (NAFTA). More on the potential impact of no trade deal agreement with the US below, and the range of exhange rates throughout the past month for the Canadian Dollar amid uncertainty about trade with the US and Mexico.
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The US and Mexico agreed on a trade deal last week, however Canada have struggled to reach any kind of agreement with the two countries, and has led to increased concern over the future of the Canadian Economy and therefore the value of the Canadian Dollar. The reason is that three quarters of Canadian Exports (which is the equivalent of a fifth of Canadas GDP) are exported to the US, which could be could severely damage if these economy if tariffs, such as much of the rest of the world are now experiencing were to apply to Canada too. The Bank for International Settlements reported last week that if the deal was revoked, Canada would lose 2.2% of its GDP (Gross Domestic Product), and would be the largest loser of the 3 countries.
This has already led to the Bank of Canada taking a more cautious approach to raising interest rates, as investment drastically slowed in the second quarter, and this could keep the bank from raising interest rates from the current 1.5%, the highest it has been since the 2008 financial crisis. Many economists had been predicting a hike in rates to 1.75% in October as Inflation has been rising, however this couldn’t change completely if a deal is not reached.
Trade negotiators had hoped to reach an agreement by last Friday however as this wasn’t the case, they now have a final deadline of the end of September to pass a detailed agreement to Congress. Clients with any exposure to the Canadian Dollar should pay close attention to any developments on this topic, as it has the capacity to create large swings on CAD exchange rates.
The Bank of Canada (BOC) will meet on Wednesday to announce their latest Interest Rate decision at 3pm, and will be the key release to watch out for this week. As the BOC last hiked rates in July, it is unlikely that they will choose to hike on two consecutive occasions, as Governor Stephen Poloz had stated that the bank wanted to increase rates gradually. However any signals to future changes to monetary policy could cause volatility for the Canadian Dollar.
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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