After a great deal of anticipation the Bank of Canada (BoC) officially raised interest rates yesterday by a quarter point to 0.75%.
This was the BoC’s first rate hike in 7 years and, as expected, it sent markets buzzing, with the Canadian Dollar (CAD) broadly strengthening against the Pound (GBP).
As the smoke clears today, however, Sterling has managed to regain some ground thanks to hawkish comments from Bank of England (BoE) policymakers and CAD profit-taking.
Hawkish Comments from BoE Policymaker Ian McCafferty Rally the Pound
This morning Bank of England (BoE) Policymaker Ian McCafferty made a particularly hawkish statement when he asserted that the BoE ought to consider unwinding its £435bn quantitative easing programme sooner than originally intended.
McCafferty also stated outright that he was inclined to vote for an increase this August, though this isn’t exactly an entirely unexpected revelation considering his previous statements and the fact that he voted for an increase last month. However, the notion that BoE should review its approach to quantitative easing was enough to drive significant demand for the Pound.
GBP/CAD Still Firmer After Canadian Housing Data
The Pound managed to claw back some of its recent losses against the Canadian Dollar as Canada’s n housing data raised new concerns about the country’s overheating housing market.
New Housing prices climbed more than forecast in May as prices continued to grow in competitive markets like Vancouver and Toronto.
Toronto especially saw a 1.1% jump, with builders citing increased construction costs and a distinct shortage in developed land as the primary drivers.
It should be noted, however, that this is a slight deceleration from the very significant 2.1% increase for April, a decrease predominantly caused by measures like the foreign buyers tax, which was implemented to reign in the Toronto housing market.
The ‘Loonie’ was not responsive to the news, however, as the biggest potential source for appreciation for the Canadian Dollar (the prospect of an imminent rate hike) is essentially now behind it.
Profit-Taking Drives CAD Down, Likely to Continue
As markets digest the first BoC rate hike in 7 years a great deal of traders are taking advantage of the ‘Loonie’s’ lofty heights by profit-taking, an activity that will likely continue in the near-term, as the Canadian Dollar still remains higher against Sterling now than it was at the beginning of the week.
Crude Oil Forecast Remains Turbulent
Crude oil prices have steadied today after evidence of stronger demand from China clashed with high production reports from key OPEC exporters.
In recent weeks oil prices have dropped to levels not seen since the end of 2016 as investors have repeatedly lost faith in OPEC’s ability to counter surging supply caused by sharp rises in production levels. Notably Nigeria and Libya (two nations exempt from the OPEC cap) have quite drastically increased oil production in recent months, enough to warrant increasing anxieties regarding OPEC’s capacity to control the global glut.
The near-term forecast for oil, and consequently the oil-correlated ‘Loonie’, is thus turbulent at best, something that may well provide Sterling with opportunities to capitalise upon.