This Canadian Dollar forecast will address the factors that could have an effect on CAD exchange rates over the coming weeks. The table below looks at the difference between the rate you would have achieved when buying £200,000.00 at the low and high levels during trading hours yesterday.

Currency Pair% ChangeDifference on £200,000
GBPCAD0.65%$2240
NAFTA deal could be expedited

NAFTA – Impact on Canadian Dollar

The Canadian dollar has come under renewed pressure as the North Atlantic Free Trade Agreement (NAFTA) is currently being renegotiated. The fifth round of talks began in Mexico city last week and there has been a small degree of speculation that the discussions could break down with one member potentially walking away from the negotiating table.

The Canadian dollar would likely suffer as a result of loss of trade considering the free trade agreement comprises $1 trillion worth of trade between the US, Mexico and Canada. Such a breakdown could also force the Bank of Canada to reverse its recent interest rate hikes due to the considerable economic uncertainty that would follow.

The major stumbling block has come about from a sunset clause also known as a termination clause that would end the NAFTA agreement after five years unless each country agrees to extend. The clause has been put forward by the US but has been received very badly by the other parties as it would create a high level of uncertainty.

The rounds of negotiations conclude today so any closing statements are likely to create further volatility for the Canadian dollar.

Canadian Inflation Falls

Inflation in Canada has fallen to 1.4% putting pressure on an already uncertain Canadian dollar. The weaker numbers take the pressure off the Bank of Canada from having to take action and raising interest rates again any time soon after the central bank surprised the markets with two interest rate increases seen in July and September. The Bank of Canada has raised concerns over some aspects in the Canadian economy but is also keeping a very close eye on the NAFTA negotiations and this is keeping pressure on the Canadian dollar. The bank has now adopted a wait and see strategy with the next rate hike now likely to be March at the earliest. It is one of the reasons why rates are now pushing back towards 1.70 for GBP CAD.

It hasn’t been all bad news for the Loonie though after a good rally in oil prices which is normally very positive for the dollar due to the high levels it produces. Canadian retail sales could make for an interesting time on Thursday and a strong number here could help support the dollar. Clients looking to buy or sell Canadian dollars should see most additional volatility surrounding any changes in the Bank of Canada’s thinking.

Thank you for reading today’s market report, I would greatly appreciate any feedback you have and would take pleasure in replying personally. I am more than happy to assist you with any of your currency requirements. Feel free to e-mail me at jll@currencies.co.uk.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.