The pound to Canadian dollar interbank exchange rate hit a six-month high this week, then fall again somewhat, as investors became concerned that the UK election may produce a ‘hung’ Parliament.

Turning to Canada, the so-called “loonie dollar” was influenced this week, as a Bank of Canada (BoC) deputy governor signaled on Tuesday that the Central Bank is likely to cut interest rates in early 2020. However, yesterday BoC Governor Stephen Poloz contradicted his deputy, saying that Canada’s borrowing costs are “about right”. So Canada’s interest rate outlook remains up-in-the-air.

Looking forward, Canada’s retail sales for September are released today, and predicted to fall by 0.1%, which may influence the loonie.

CAD Data this week and BOC decision to drive rates

BoC’s Wilkins signals interest rates cuts, below 1.75%

The Canadian dollar initially lost value this week, in part because BoC Senior Deputy Governor Carolyn Wilkins gave a speech, in which she signaled that Canada’s Central Bank looks likelier to reduce borrowing costs below their current 1.75%, early next year.

In particular, Ms. Wilkins signaled that, although Canada’s economy remains “relatively well overall”, the BoC “still has room to manoeuvre” and that “lowering rates could provide some insurance against downside to inflation”. The BoC is one of the only major Central Banks not to have eased monetary policy recently, so Ms. Wilkins’ remarks may signal that the BoC is preparing to join the global trend. Lower interest rates traditionally weaken the Canadian dollar.

Poloz contradicts deputy, says rates “about right”

However, following Ms. Wilkins’ remarks early this week, the Canadian dollar has since rebounded on the interbank market. A partial explanation for this is that, in a speech yesterday, BoC Governor Stephen Poloz said that Canada’s interest rates are “about right”.

Previously, the BoC had refrained from saying that Canada’s interest rates are “appropriate”, in the Central Bank’s October statement. So Mr. Poloz’s remarks suggest that the BoC may be winding back, and that an interest rate cut may not be inevitable. This has benefited the Canadian dollar.

Looking at Canada’s economy, Canada’s inflation arrived at 1.9% in October, as forecast, close to the BoC’s official target. Meanwhile, as I mention, today Canada’s retail sales for last month are due. Next Friday 29th November, Canada’s Gross Domestic (GDP) statistics for Q3, between July and September, are released, which could impact the value of the loonie dollar too.

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