The Canadian dollar’s recent gains look set to continue into November, with yet more economic data further justifying the Bank of Canada’s optimistic monetary policy stance.

Currency Pair% Change in 1 monthDifference on £200,000
GBPCAD1.77%$6,000
Is the Bank of Canada’s optimism unjustified?

Investors have been flocking towards the Loonie over the last week or so, ever since Governor of the Bank of Canada insisted the Central Bank remains heavily committed to multiple aggressive interest rate hikes over the next year. He commented only yesterday that “Canadians should get used to the idea of 3% interest rates”.

With Crude Oil (Canada’s main export) production up by 3.2%, GDP rising for the 7th consecutive month and Global trade tensions now a thing of the past, it's hard to see how the pound will mount another charge back towards the 1.70 mark. Friday’s employment data will no doubt be the main driver to end the week.The release has continued to impress since the start of the year and given the fact that Canada is currently running a near full employment I can only see this weakening the pound’s grip further.  Those looking to buy the Loonie may want to consider their options.

Is the Bank of Canada’s optimism unjustified?

Despite all of this positivity, I still feel it's very unlikely that the markets will have forgotten the main drivers behind the multi month lows we were seeing just over 2 weeks ago. Although global tensions have now eased, growth in consumer credit is hovering at near 35-year lows, whilst the fall of over 8% in home sales back in September may still be playing on investor confidence for now.

It goes without saying that any sign of a slowdown in consumer spending and inflationary pressures could gradually see the Loonie fall out of favour with the markets as it would make the prospect multiple interest rate hikes throughout 2019 far less likely.

Incidentally, raw material prices surprised the markets yesterday and fell by nearly 1%, which seems to be a consistent trend since the end of spring. 

Importantly today brings with it the latest Markit Economics business confidence survey from the manufacturing sector. If yesterday’s release is reflected in this afternoon’s reading, a drop-in price for the Loonie could be expected.

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