The Canadian Dollar weakened during Wednesday afternoon’s trading following a speech from the Bank of Canada’s Governor Stephen Poloz. During his hawkish speech Mr Poloz pointed out that recent official data clearly points to a slowdown in Canadian economic growth for the second half of the year.
Recently, the Canadian Dollar has gone from strength to strength against a basket of currencies following two interest rate hikes this year. The Canadian Dollar, along with the Australian Dollar, has been the commodity currency of choice for the riskier investor.
It would seem that Mr Poloz has now quashed any hopes for an immediate rate hike due to the recent unknowns that are clouding the inflation outlook. One thing that he has made clear is that the Bank of Canada (BoC) are not going to act in line with previous economic cycles. This month’s interest rate hike was nearly almost a complete surprise to the markets and in today’s speech, Poloz added that the BoC could be surprised in either direction with regards to inflation, as it is currently dependant on so many different factors, and they will continue to feel their way cautiously in the coming months.
Even though inflation headed higher this month concerns around future growth remain an issue and I feel this will cause Canadian Dollar weakness. Not only this, but the Canadian economy, although it may have made a move away from its dependency solely on the export of oil in recent months – it is still sensitive to the price fluctuations of oil and is something that must be watched.
Looking ahead for the GBP/CAD exchange rate, I would expect the Canadian Dollar to remain under pressure, especially whilst the chances of a rate hike in the UK are currently keeping Sterling buoyant against most of the majors. Investors are now likely to remain cautious regarding the Canadian Dollar until further clarity is provided.