The Pound (GBP) has made a minor loss against the Canadian Dollar (CAD) today, following a Bank of Canada (BOC) interest rate hike.
The BOC’s rate hike from 1.25% to 1.5% was widely predicted, but has still raised confidence among CAD traders.
Perhaps the most positive point of today’s BOC rate hike was that policymakers didn’t seem to be altering their planned course of rate hikes.
In the Canadian central bank’s own words:
‘[The] Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data.’
Before the rate hike news, some investors expressed concern that the BOC could turn cautious in the face of US trade tariffs on Canadian exports.
(Last updated 11th July, 2018)
Higher UK Wage Growth could Push GBP/CAD Exchange Rate Up
The Pound (GBP) has advanced against the Canadian Dollar (CAD) today, in the wake of a pair of high-profile government resignations.
Pound Sterling initially fell on news of the departure of Brexit Secretary David Davis and Foreign Secretary Boris Johnson, but has since recovered.
Looking ahead, the GBP/CAD exchange rate could improve next week when high-impact UK wage growth data comes out next Tuesday.
The pace of wage growth during May is predicted to rise, with and without bonuses included.
Such results could lend a great deal of support to the Pound, as a faster pace of wage growth suggests that UK consumers will be more inclined to spend.
In turn, this can drive up consumer confidence and economic resilience, opening the door to a Bank of England (BoE) interest rate hike in the coming months.
GBP/CAD Exchange Rate Outlook: Is Pound Sterling-Boosting BoE Interest Rate Hike Incoming?
Sticking with a possible near-term Bank of England (BoE) interest rate hike, such a decision from the UK central bank could cause major GBP/CAD exchange rate gains.
Despite supportive UK data over previous weeks, however, a BoE interest rate hike is not assured; caution from BoE officials could dispel hopes for a hike next month.
Staying cautious, PricewaterhouseCoopers Chief Economist John Hawksworth says:
‘We estimate that [UK] growth in the second quarter will end up at around 0.4%, given signs from business surveys of continued forward momentum in services and construction in June.
‘This pick-up in growth could be enough to tip the majority of the [BoE Monetary Policy Committee (MPC)] towards a rate rise in August, though this is not yet a done deal given continuing uncertainties over Brexit and rising global trade tensions.’
If a BoE interest rate hike fails to materialise on 2nd April, then the Pound to Canadian Dollar (GBP/CAD) exchange rate could fall sharply because of trader disappointment.
Canadian Dollar to Pound (CAD/GBP) Exchange Rate Forecast to Rise on BOC Interest Rate Hike
Before August’s BoE rate decision, the Canadian Dollar to Pound (CAD/GBP) exchange rate could get immediate support on Wednesday’s Bank of Canada (BOC) rate meeting.
BOC officials are widely expected to approve an interest rate hike from 1.25% to 1.5%, which could cause a Canadian Dollar exchange rate rally.
Despite widespread predictions for a CAD-boosting rate hike, however, there is still a chance that the BOC might hold fire tomorrow and cause CAD losses.
Considering the odds of a rate hike this week, CIBC World Markets Chief Economist Avery Shenfeld says:
‘The message is that the BOC sees the need for higher rates but has also made clear it needs to get sufficient economic data to confirm the economy can live with it
‘There is no preset calendar to higher rates and how fast they come will depend on how well the economy does.’
In summary, a forecast-matching BOC rate hike on Wednesday could trigger a Canadian Dollar advance, while an undesired rate freeze could devalue the CAD.