UPDATE: Bank of Canada Leaves Interest Rates Unchanged
The Bank of Canada (BoC) left interest rates unchanged on Wednesday (as markets expected) claiming that continued monetary policy accommodation would be required to keep things running smoothly and on target.
The accompanying statement read:
‘While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target’.
The statement also highlighted that inflation is running ‘close to the 2% target’ and that wage growth has firmed (though admittedly it remains lower than would be typical for an economy with very little labour market slack).
Ultimately, this rate outlook was rather cautious and whilst it did point to higher interest rates over time, this plan of action was already expected by the markets.
Nonetheless, Sterling continued to flounder against the ‘Loonie’ after this news was released.
Pound Canadian Dollar (GBP/CAD) Exchange Rate Forecast: BoC Unlikely to Raise Interest Rates
The Pound Canadian Dollar (GBP/CAD) exchange rate could encounter increased volatility today as markets respond to the imminent Bank of Canada (BoC) rate decision.
Markets currently do not expect the central bank to change their benchmark interest rate at this meeting, with overnight index swaps currently indicating a one-in-seven chance of a hawkish move.
This is largely because of the disappointing performance of recent releases, with Canada’s job market losing some 88,000 positions in January, their month-on-month GDP reading dropping to 0.1% in December, and inflation slumping to 1.7% after a 1.9% rise in December.
Indeed, Scotiabank Economist Derek Holt surmised in a recent note; ‘There are some rather compelling reasons to pause the hike cycle’.
This doesn’t necessarily mean that their accompanying statement will remain unchanged, however, with the sentiment contained within, optimistic or pessimistic, liable to give the ‘Loonie’ a shot in the arm or send it scurrying.
Pound (GBP) Exchange Rates Limited as EU Rejects UK PM May’s Trade Proposal
Taking a look at the current performance of the markets; the Pound Canadian Dollar (GBP/CAD) exchange rate is currently floundering, limited by EU Council President Donald Tusk’s latest rejection of Downing Street’s proposal for a bespoke trade deal beyond the likes of Canada’s.
Tusk, speaking at a press conference reinforced the EU Parliamentary stance that the EU is only offering a Canada-style deal. He argued that because Downing Street wants to leave the single market and the customs union (and leave the jurisdiction of the European Court of Justice), all that they are willing to offer is a basic trade deal.
He stated:
‘Therefore it should come as no surprise that the only remaining possible model is a free trade agreement. I hope that it will be ambitious and advanced and that we will do our best, as we did with other partners. But it will only be a trade agreement’.
He also claimed that the EU would want access to the UK’s fishing waters and for resources to be maintained.
This outlook continues to be at odds with the UK’s push for a more comprehensive trade deal without being beholden to the ECJ, an impasse that continues to weigh on the market outlook for Sterling.
Tariff Talk: Volatility Forecast for Canadian Dollar (CAD) Exchange Rates as Talk of Global Trade War Escalates
The Canadian Dollar (CAD) could see greater volatility in the medium-term if talk of a global trade war escalates.
Markets are currently slightly spooked by the resignation of US Chief Economic Advisor Gary Cohn, with many concerned that his absence will only lead to US President Donald Trump doubling down on tariff measures.
Indeed, the President has continued to speak optimistically about the prospect of a trade war, citing the fact that other countries have a lot more to lose due to their massive trade surplus with the US.
‘When we’re behind on every single country, trade wars aren’t so bad. When we’re down by $30bn, $40bn, $100bn, the trade war hurts them, doesn’t hurt us. So we’ll see what happens. We’re going to straight it out and we’ll do it in a very loving way’.
This could simply be a threat to better leverage a favourable deal from NAFTA negotiations, however, with the President recently claiming that the trade tariffs on steel and aluminium would only go away if the NAFTA deal proved ‘fair’.
Nonetheless this is, in essence, the crux of the problem for the Canadian Dollar, for any escalation beyond words to actual tariffs poses the potential threat of retaliatory measures, an event that could leave Canadian exports floundering and the ‘Loonie’ with them.
Comments are closed.