The markets were quiet on the Canadian side today following a bank holiday known as Labour day in North America.
The Canadian Dollar strengthened ever so slightly against the Pound and this downward pressure looks set to continue. I feel it may have been negative news from the UK’s side of things that caused the GBP/CAD exchange rate to weaken slightly, and I personally don’t think that things will improve anytime soon for the Pound.
With the BBC reporting that many economists believe that a interest rate hike in the UK (one of the main drivers for currency strength) looks set to be deferred now until early 2019 at the very earliest. This news wouldn’t have been welcomed by investors who will be able to reap higher rewards in foreign currency.
This week could be key for those with a GBP/CAD exchange to complete, as the rate looks set to dip below 1.60 if the variables continue to move in the Canadian Dollar’s favour. The downward pressure is likely to remain with the Pound for the time being with Construction data released this morning also pushing the Pound lower.
Construction has been one of the worst affected areas since Brexit, as foreign investors seem reluctant to put the money forward for big projects in the UK due to the uncertainty. Although this hasn’t caused the Pound to weaken too much, the prospect that other areas of the economy could be affected such as Manufacturing and Services is now starting to become a reality. Data at the end of this week for both sectors will be vital.
Before the end of the week, the all-important interest rate decision from the Bank of Canada will be made. The chances of an interest rate hike are currently sat at 41%, this would push the Canadian Dollar even lower. The expected result is for the interest rate to remain the same, and I am of a similar opinion. I personally think that the oil export industry in Canada is currently too volatile for the BoC to raise rates at the minute following the natural disaster in Texas which has caused thousands of oil refineries to shut down. It also gives the BoC another month to see whether inflation will pick up. It is interesting to see that the markets have almost entirely priced in a rate hike for October.