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After a very volatile April in the currency markets, the Canadian Dollar strengthened against both the USD and GBP. This was mainly caused by events overseas, rather than news or data from Canada.
Firstly, Canada, as well as many other commodity based economies, had been badly effected by the slow down in China. Now these issues seemed to have eased and activity in China picked up, it has had a positive effect on the Loonie. This in turn has improved Canadian trade balance figures and its manufacturing sector is recovering well.
One of the main factors effecting the price of USD to CAD exchange rates is news from the US that they are holding off any further interest rate rises. If a county raises interest rates, their currency will normally strengthen. Now the chances of another hike in the near future has cooled, the USD has weakened against a basket of major currencies, including the Canadian Dollar.
The GBP to CAD exchange rates also fell after news the UK would not be raising interest rates any time soon. This however is not the latest news weakening the pound. On the 23rd June this year, the UK will vote whether to stay in the EU or not. This historic vote is causing a great deal of weakness in sterling, as investors are uncertain of the outcome and what it would mean if the UK did leave.
These events have caused the rates to fall recently with GBP to CAD exchange rates trading around 1.84 mid market at the beginning of May and USD to CAD around 1.25.
What is moving the exchange rates this week?
Looking at the week ahead, there are a number of factors effecting the price of the Canadian Dollar, both domestic and from overseas but lets look at the most influential of those.
Wednesday will see the latest Canadian trade balance figures. This is when we will see if the recovery in oil prices and improvement in China has helped the Loonie. The next data of note will be Friday when we have the latest employment change and unemployment rate. These will give a very good indication of economic health.
Finally we end the week with a speech by Gov Council member Schembri, at the Peterson Institution for International Economics, in Ottawa. If he is hawkish, we could see the Canadian Dollar strengthen further.
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