The Canadian dollar has been performing well against sterling throughout the month of May, with GBP/CAD Interbank exchange rates falling from highs of 1.77 seen earlier this month, to lows of 1.69 just yesterday. Sterling weakness will have a large part to play in this, with uncertainty surrounding Brexit mounting further after Theresa May’s notice of resignation last week, however the Canadian economy has seen some very positive signs of its own.
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The Bank of Canada released its latest Interest Rate decision on Wednesday, where it was announced that it would keep rates on hold at 1.75%. Although this was widely expected, the policy statement afterwards provided some confidence that the Canadian economy is headed in the right direction, after the last half of 2018 showed a dramatic slowdown in both the oil and housing sectors, and consumer spending eased.
The Bank cited the escalating trade war between the US and China as the main reason for keeping rates on hold, as it is ‘heightening uncertainty about economic prospects.' The trade war could have severe implications for economies such as Canada’s which is heavily reliant on its exports.
However, policy makers said that the economy is performing as they had expected it to, after cutting growth forecasts in the first quarter of 2019 to 0.3%, whilst expecting growth to rise to 1.3% in the current quarter. They also stated that there was growing evidence to suggest that the slowdown at the end of last year and beginning of this year was temporary. At this stage the Central Bank provided no insight into when they would next consider raising interest rates, however the oil sector appears to be recovering, housing concerns are now just limited to certain regions in Canada, and exports and consumer spending patterns are looking more positive too.
This afternoon at 12.30pm, Gross Domestic Product (GDP) figures for the first quarter of 2019 will be released and are expected to rise from 0.4% to 1.2%. This could provide the Canadian dollar with another boost, and clients holding CAD may wish to contact us ahead of this release, so that we can help you to take advantage of any spikes as they happen.
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