Canadian Dollar Treading Water As The Market Awaits Poloz’s Speech

The Canadian Dollar is doing what it can to stay stable as traders look for the right position while in anticipation of the speech by Gov. Stephen Poloz, Bank of Canada, due at Wednesday 20:00 London time, which will give the market and currency exchange firms like Knightsbridge FX one last piece of key insight into Canada’s central bank chief before the BoC makes a decision on interest rates on July.

The market is hoping that Bank of Canada will raise its interest rates on the 11th of July, which would increase the cash rate up to 1.5%, and will be the BoC’s fourth rate hike within the last 12 months. However, the market’s confidence in whether or not the BoC will raise rates have waned in the recent weeks.

Pricing in the overnight index swaps markets, which give investors protection against changes in interest rates as well as providing insight into forecasts to the monetary policy. These rates imply that the Canadian cash rate of 1.38% on the 11th of July, which marks a 56% probability of a rate hike within two weeks, but that’s still a drop from the 1.44% rate prevailing at the start of June.

Brittany Bauman, one of TD Securities’ macro strategist says that the lower expectations for the rates are due to increase uncertainty and disappointment in trading and data front. Despite this, she says that the view for the July hike remains the same, which is consistent with past data and BoC decisions.

The Bank of Canada has given signs that it would raise interest rates in July, though the Canadian inflation has downed and risks to the economy have gone up thanks to the White House’s trade policies; with the NAFTA renegotiations and approach to international trade are some of the reasons for the lower forecasts from currency exchange firms like Knightsbridge FX, for the country’s economy.

In response to the tariffs imposed on steel and aluminium imports by the US, Canada set retaliatory measures due to come effect by the 1st of July. The US, as a counter, has looked into a section 232 investigation under the Trade Expansion Act 1962 so the government can raise tariffs on automotive imports into the US, which the TD Strategies says will have heavy effects on Canada.

Recently, the USD/CAD rate dropped by 0.09%, at 1.3288, but that’s still an increase of 5.6% in 2018. The Pound-to-Canadian-Dollar rate has dropped by 0.34% lower, at 1.7524.

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