Canadian dollar strengthens sharply after Bank of Canada signal
The Canadian dollar has strengthened sharply over the past 24 hours with USD/CAD sliding to 7-month lows below 1.3300. GBP/CAD also dipped sharply to below 1.70 from 1.75. As a result to this sharp increase you may want to consider to send money from Canada to UK, it might be a great opportunity to make more out of your money.
The move was triggered by comments from Bank of Canada Senior Deputy Governor Wilkins who stated that the central bank would consider whether the central bank should remove some of the substantial amount of monetary stimulus in the economy.
The Bank of Canada cut interest rates in 2015 to support the economy after oil prices collapsed, but recent growth trends have been encouraging and the bank is more optimistic surrounding the outlook. There is an increased probability that the Bank of Canada will move to raise interest rates this year.
The sharp moves in the Canadian currency illustrates that any central bank move towards a change in monetary policy and shift in interest rates is extremely important in setting exchange rates. Any move towards a tighter policy after a prolonged period of low interest rates is a very important signal and is liable to put sustained upward pressure on the currency.
In contrast, a signal of monetary easing and lower interest rates after a tight policy is important in weakening a currency.
On a medium-term view, both currencies are undervalued compared with the US dollar which should limit moves in the GBP/CAD cross with strong support on any approach to the 1.60 area.
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