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Cautious BOC Outlook Enables Pound to Canadian Dollar Rate Recovery

The Pound has bounced back against the Canadian Dollar on Wednesday afternoon, following the last Bank of Canada (BOC) interest rate decision of 2017.

The BOC left interest rates at 1%; this was largely expected. What was less predictable was the BOC’s tone, which proved too cautious for some traders.

Stressing that Canadian interest rates could rise further in the future wasn’t enough for CAD traders, who focused on the cautious tone and bought into the Pound.

This pushed the GBP/CAD exchange rate up from an earlier 1.6944 to a better 1.7109.

(First published December 6th, 2017)

The Pound to Canadian Dollar exchange rate has declined by -0.6% today, owing to growing concerns that Brexit talks will remain stalled.

GBP/CAD Rate could Rise on Miraculous Brexit Breakthrough

While the odds seem stacked against the UK government, there is still a slim chance of Pound-boosting success in upcoming Brexit talks.

The most pressing issues to be resolved are those which have dominated talks for months – the Irish border, the UK-EU ‘divorce bill’ and the rights of EU citizens in the UK.

While Irish border talks have failed spectacularly in recent days, there could still be progress on the divorce bill before next week’s key EU deadline.

If the UK government is able to make anything resembling actual progress, traders could still commit to the Pound, improving the GBP/CAD exchange rate.

Crunch time will be a Eurogroup meeting on December 15th, when EU leaders will assemble to discuss the UK’s current progress in Brexit negotiations.

If the UK is judged to have covered enough ground in discussions, then the Eurogroup could allow the UK to start work on its most coveted topic – post-Brexit trade deals.

At the present time, this outcome seems a low probability, so if the UK is denied access to future trade talks then the Pound could slide.

Canadian Dollar to Pound Rate may Rally on Bank of Canada Outlook

While it has already been trading up against the Pound on Wednesday, the Canadian Dollar could see an even greater rise in the near-term.

The Bank of Canada (BOC) will be making its last interest rate decision of 2017 shortly, although this isn’t expected to see a rate change from the current 1%.

Of greater importance is the BOC’s outlook for 2018, which could include hints of future monetary policy.

BOC Governor Stephen Poloz previously backed two interest rate hikes in 2017, but some economists believe that his actions will be more restrained in the New Year.

Giving a forecast on what the BOC could predict, National Bank of Canada economists Stefan Marion and Krishen Rangasamy have said;

‘We continue to think the [BOC] will be forced by strong data to deliver more interest rate hikes than what markets are currently expecting for 2018’.

If the BOC does appear ready to continue raising Canadian interest rates at a steady rate in 2018, the Canadian Dollar might rise sharply against the Pound.

Recent Interbank GBP CAD Exchange Rates

At the time of writing, the Pound to Canadian Dollar (GBP CAD) exchange rate was trading at 1.6944 and the Canadian Dollar to Pound (CAD GBP) exchange rate was trading at 0.5897.