Canadian Dollar Performance Update - Spring 2007

During recent months, the Canadian dollar traded a tight range against Sterling between 2.2500 and 2.3000. This follows a sharp uptrend in GBP/CAD from a low around 1.9737 (02/03/06) to a recent high at 2.3567 (23/01/07) caused by expectations of higher interest rates in the UK, coupled with interest rate stagnation in Canada. At the same time, the US$ has weakened, forcing the exchange over US$2 per GBP and down to US$1.11 per CAD giving UK customers a boost while detracting the value for our southern neighbours.

In the UK, the Bank of England left interest rates on hold in April, however, expectations of higher rates in the months ahead continue to offer support to Sterling. With a buoyant housing market and strong levels of consumer spending, the market is expecting that the Monetary Policy Committee (MPC) will be forced to raise rates at least once more in an attempt to dampen down inflationary pressures. The headline Consumer Price Index (CPI – the most recognised measure of inflation in the UK) is currently running at 2.8% y/y against a target rate of 2.0% and raising interest rates is the most obvious way of combating rising prices.

Meanwhile, Canada has been faced by interest rate stagnation following the rise to 4.25% in May 2006. Risks to the Canadian economy remain finely balanced with the threat of an economic slowdown filtering across the boarder from the US. As its biggest trading partner, any signs of a struggling US economy may impact the Canadian economy although this has not really been the case so far in 2007. In similar fashion to the UK, the Canadian housing market remains robust with The Canadian Real Estate Association reporting strong sales of existing homes in February and record high average house prices. The Canadian Dollar is also likely to remain well supported against the US$ by rising oil prices given that oil exports represent a large percentage of the Canadian economy.

Looking back to March 2006 GBP/CAD traded a low of 1.9737 (02/03/06) indicating a difference of CAD 32,300 in less than twelve months when looking to transfer £100,000. Therefore, anyone looking to transfer funds between Canada and the UK should pay considerable attention to the GBP/CAD exchange rate as it can have such a dramatic impact upon their future wealth. Should you be looking to move large sums it definitely pays to monitor the markets and be aware of international factors that can affect which direction currencies will go. The debt and ongoing military interventions of the US will undoubtedly have some effect on the US$ against the CAD, though the weak US$ will most likely help boost the exports from their struggling economy. The recent trend of the Dow Jones to smash new records and factory orders starting to increase does point towards the start of a turn around for the US which, if fuelled by the exports will be another reason for the US to try to maintain a weaker dollar.

Advising migrants and businesses of currency movements and protecting them from the risks associated with fluctuating exchange rates is the speciality of currency brokers. Whilst nobody can guarantee future currency movements due to the sheer size and number of participants in the market, both personal and business accounts can increase their bottom lines in dramatic fashion by taking expert advice.