Pound to Canadian Dollar Exchange Rate Rises Despite BOC Interest Rate Hike
Updated 16:48 GMT 17/01/2018:
As many analysts and investors expected, the Bank of Canada (BOC) hiked Canada’s interest rates to 1.25% in its Wednesday policy decision.
Despite this, GBP/CAD extended its gains rather than falling. The pair touched on a fresh one-month-high of 1.7264 on Wednesday afternoon following the announcement.
The Canadian Dollar was sold as the bank took a relatively cautious and dovish stance, hinting that some stimulus was still needed.
While the bank hinted that more interest rate hikes were on the way, it also warned about uncertainty facing the North American Free Trade Agreement (NAFTA).
[Published 10:50 GMT 17/01/2018]
The Pound to Canadian Dollar (GBP/CAD) exchange rate has been advancing for most of the week so far, with the Canadian Dollar (CAD) weaker in anticipation of this afternoon’s upcoming Bank of Canada (BOC) policy decision.
GBP/CAD opened the week at the level of 1.7096 and has gained around a half a cent since then. On Wednesday morning the pair touched on a high of 1.7172, its best level in over three weeks.
Analysts are anxious that the Bank of Canada could take a more dovish than hoped tone in its upcoming policy decision, due to recent concerns about the North American Free Trade Agreement (NAFTA).
If the BOC shows concern about NAFTA in its Wednesday policy decision, the Pound to Canadian Dollar exchange rate could continue to climb.
However, a Bank of Canada rate hike, especially one with a hawkish tone behind it, could knock GBP/CAD and cause it to shed some of its recent gains.
Canadian Dollar (CAD) Exchange Rates Weak on NAFTA Concerns
In recent weeks, markets have been increasingly worried that US President Donald Trump may follow through on his threats and pull the US out of the North American Free Trade Agreement (NAFTA).
As Canada’s economy benefits heavily from its close trade ties to the US, the US pulling out of NAFTA could have a major effect on Canadian imports and exports.
Concerns of this possibility have weighed heavily on the Canadian Dollar, despite otherwise strong demand for risk-correlated currencies lately.
The risky Canadian Dollar would typically benefit from news that markets expect the global growth outlook to improve. Prices of oil, Canada’s most lucrative commodity, have also been strong in recent weeks.
Pound (GBP) Exchange Rates Largely Unchanged Following UK Inflation Report
Demand for the Pound (GBP) has been relatively limp in recent sessions, as the Brexit outlook remains filled with uncertainties and UK data fails to impress investors.
Tuesday saw the publication of Britain’s December Consumer Price Index (CPI) report, which largely met analyst expectations.
The month-on-month figure improved from 0.3% to 0.4%, while the yearly figure slipped from 3.1% to 3% as forecast.
Markets were slightly disappointed by the yearly core inflation print, which fell short of the expected 2.6% and slipped from 2.7% to just 2.5%.
Overall the report indicated that Britain’s price pressures were waning as inflation finally caught up with the Pound’s turbulent losses since the Brexit vote. Due to the sliding core inflation figure, speculation of a more hawkish Bank of England (BoE) faded.
Pound to Canadian Dollar Forecast: Bank of Canada (BOC) and UK Retail Stats in Focus
The Bank of Canada’s January policy decision could influence the Pound to Canadian Dollar (GBP/CAD) exchange rate outlook if it surprises investors.
Markets anticipate that the BOC could make its first Canadian interest rate hike of 2018 this week and hint that there will be more throughout the year.
If the bank doesn’t hike Canadian interest rates or takes an unexpectedly dovish tone, perhaps issuing warnings about the North American Free Trade Agreement (NAFTA), the Pound to Canadian Dollar (GBP/CAD) exchange rate is likely to continue this week’s climb.
On the other hand, a hawkish tone from the bank could cause GBP/CAD to see weaker performance in the coming days.
After investors digest the BOC news, the next event likely to cause a shift in GBP/CAD movement will be Friday’s British retail sales results from December. If they beat expectations the Pound will be more appealing.
Of course, any fresh developments on the Brexit process, as well as any changes in tone on NAFTA in the US, could also influence the GBP/CAD outlook.
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