This Canadian Dollar update examines factors that could affect CAD exchange rates in the short-term and looks at whether the Bank of Canada might choose to raise interest rates soon.
The table below shows the difference you would have received when converting £200,000 to Canadian Dollars at the high compared to the low over the last month:
|Currency Pair||% Change||Difference on £200,000|
The revised trade balance figure from the first quarter was actually $1.9BN more than originally thought. The markets were expecting a narrowing of $0.7BN. The widening of the trade balance has been put down to a rise in the cost of Canadian imports, which has reached a record high throughout the month. This was compounded by a slower rise in exports from Canada.
The reason that this trade balance news carried so much significance for the Canadian Dollar's value is that the Bank of Canada’s monetary policy is influenced by economic growth.
With imports and exports both rising throughout the month, this is likely to in turn GDP which increases the likelihood of a rate hike at some point this year.
With this in mind, economists have now started to look at the July Bank of Canada Interest rate decision as a date for a possible rate hike. Earlier this week, Canada’s GDP data showed a resilient Canadian economy, effectively bouncing back from a slump the month previous.
One of the reasons why a rate hike isn’t certain is the North American Free Trade agreement. Canada Mexico and US have been trying to re-negotiate the agreement for nearly a year, and at present there is still no firm deal on the table.
If America withdraw from the agreement, the Loonie could lose up to 20% of its value seemingly overnight according to economists. Vice versa, if a favourable agreement is reached, the Loonie is likely to strengthen.
Even though the Canadian economy is preforming well, the risk of the NAFTA agreement and on-going trade war with China and US are at present weighing heavy on the minds of the Bank of Canada’s policy maker’s minds. I am therefore predicting that the Loonie is to remain under pressure for the foreseeable.
For more information on how future data releases could affect your CAD transfer, call our trading floor on 01494 725 353.
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