Sterling fell somewhat versus the Canadian dollar on the interbank market this week. As with other major currencies, Parliament’s decision to delay passing PM Johnson’s Brexit legislation affected the pound.

However, another influence on the GBP/CAD interbank exchange rate this week was Canada’s election, in which current Prime Minister Justin Trudeau won, although without a majority.

Elsewhere, Canada’s retail sales fell in August, said trusted statistics this week, although the Bank of Canada (BoC) looks set to keep interest rates on hold at 1.75%, unlike other major central banks.

Sterling Blip following Polls tightening up

Trudeau wins election with minority government

Canada’s Prime Minister Justin Trudeau won the country’s general election this week, though with just 157 seats, -20 fewer than last time, and -13 below a majority.

As a result, Mr. Trudeau’s Liberal Party may have to depend on Canada’s other left-wing parties, namely the New Democratic Party (NDP) and Greens, to pass legislation. However, Mr. Trudeau has ruled out forming a formal coalition with these parties, instead preferring to pass laws on a case-by-case basis.

Mr. Trudeau’s victory has strengthened the Canadian dollar, both because he’s considered a responsible, moderate leader and because it signals continuity in Canada’s economic and political outlook.

Canada’s retail sales unexpectedly fall in August

However, in spite of the boost that Mr. Trudeau’s re-election has given to the Canadian dollar, Canada’s economy showed signs of weakness this week.

To be specific, Canada’s retail sales unexpectedly fell by -0.1% in August, according to Statistics Canada (StatsCan), below forecasts for a +0.4% gain, as well as July’s +0.6% rise. Moreover, excluding vehicles sales, Canada’s retail performance sank by -0.2% in August.

This suggests that Canadians splashing out on cars and other automobiles was partly responsible for propping up Canada’s retail sales over the Summer.

BoC looks set to keep interest rates at 1.75%

That said, even though Canada’s retail sales fell in August, Canada’s central bank, the BoC, looks unlikely to cut interest rates below their current 1.75% for the time being.

If so, this would mark a clear contrast with the US Federal Reserve, which looks set to reduce borrowing costs next week, to 1.5%-1.75%, and the ECB, which is also looking for ways to further ease monetary policy.

In turn, Canada’s higher interest rates could encourage investors to buy CAD-denominated assets, for higher returns, thereby frequently affecting the value of the loonie.

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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.