GBP/CAD Forecast: Pound to Canadian Dollar Exchange Rate Surges as BoC Rate Hike Undermined by NAFTA Uncertainty

GBP/CAD Gets Boost as BoC Warns Future Rate Hikes Hinge on Fate of NAFTA

The Pound to Canadian Dollar (GBP/CAD) exchange rate is rocketing higher this afternoon as investors react to the Bank of Canada’s (BoC) latest rate decision.

At the time of writing GBP/CAD has surged 0.52% from today’s opening levels, climbing around a cent in the wake of the BoC rate decision.

Canadian Dollar (CAD) Wobbles on Worries

The BoC held its first policy meeting of the year this afternoon, kicking off 2018 with a vote to raise interest rates from 1% to 1.25%.

This is the third rate hike in just sixth months by the central bank and follows December’s impressive employment report.

The news, however, failed to have a positive impact on the Canadian Dollar, with the hike having already being priced in by investors ahead of time.

Instead CAD sentiment dropped like a stone as the bank outlined its monetary policy outlook for 2018, warning that the uncertain fate of the NAFTA trade agreement could hamper further tightening.

The BoC’s accompanying statement read:

‘Recent data have been strong, inflation is close to target and the economy is operating roughly at capacity, however uncertainty about the future of NAFTA is weighing increasingly on the outlook.’

This dented the chances that the BoC will look to match the US Federal Reserve in hiking rates three times this year and led to a sharp drop in the Canadian Dollar.

Pound (GBP) Bolstered by Saunders Remarks

The Pound was able to find some gains ahead of the BoC meeting, however, as markets reacted to comments from Bank of England (BoE) policy maker Michael Saunders.

Saunders appeared to be fairly upbeat as he commented on the state of the UK’s economy and suggested that while unemployment is unlikely to fall any further the labour market may be tightening in 2018.

He suggested this would prompt wage growth to improve and could allow for another rate hike in the foreseeable future.

In a speech early this afternoon Saunders said:

‘If the economy turns out broadly in line with the outlook I have described – labour market tightness and signs of higher pay growth – I consider it likely that interest rates will need to rise further over time.’

While Saunders was reluctant to commit to any monetary tightening this year, markets welcomed the comments, prompting GBP/CAD to strengthen.

GBP/CAD Exchange Rate Forecast: UK Retail Sales to Slow?

Looking ahead the GBP/CAD exchange rate is likely to slide at the end of this week’s session, with the release of the UK’s latest retail sales figures. Economists are forecasting that sales growth will have slowed from 1.1% to 0.3% in December.

Meanwhile the Canadian Dollar may firm in the second half of the week if oil prices continue to hold at about $70 a barrel, although concerns over NAFTA could still undermine the currency if rumours of its demise continue to circulate.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard