This afternoon the Bank of Canada delivered on the expected and raised the base interest rate from 0.5% to 0.75%. This has caused nearly a three cent gain for the Canadian Dollar against Sterling with the GBP/CAD rate moving to a 4-month low at 1.639.
Stephen Poloz, the Governor of the Bank of Canada spoke after the announcement suggesting that the changes today won’t take effect for around 18-24 months. Poloz was very optimistic about Canada’s economy suggesting that the stimulus had worked and was no longer needed. Moving forwards if inflation does start to rise then the Bank of Canada may consider a further rate hike in the future.
There is however some concern as the price of oil does look to be falling again. Following last year’s major slump there were concerns for Canada as oil is their biggest export. Assuming that the price of a barrel doesn’t drop too much further below $40 a barrel, then there may not be too much of a consequence. However, it will be worth keeping an eye on as it can have a major effect on the strength of the CAD.
Where to next for the GBP/CAD rate
Now that there has been an interest rate hike, I would not be surprised to see the GBP/CAD continue to fall towards the 1.60 level. Sterling is beginning to struggle with cracks potentially appearing in the economy and there could be more negative data to come. Now that the idea of an interest rate hike in the UK also seems to be on hold there is certainly more room for a fall in the exchange rate.