Rate Rises Spell Success for Canadian Dollar and Euro

Forextraders

Two major global currencies were given a big boost yesterday after news of actual and potential rate rises came from their respective central banks.

The Bank of Canada’s decision to raise interest rates to 1.5% meant that the Canadian dollar rose in value by 0.8%. The rate decision, which was fully expected by many traders and had long since been priced in by markets, is expected to be followed up by further rises in the future.

Given that the rise occurred in an unstable climate fuelled by the US-China tariff war, it’s believed that the Bank will choose to take a step by step approach to rate rises as opposed to hiking them all at once.

The decision to raise interest rates in Canada occurred at the same time as news emerged about a potential rate rise in Europe. Reports are suggesting that those responsible for rate decisions at the European Central Bank (ECB) are divided over whether or not to increase rates across the Eurozone. The question, however, appears to be one of “when” rather than “if”. The reports state that some of the decision-makers at the ECB support a rate rise in the summer of next year, while others would prefer to wait until later in the year instead. In June, the ECB said it was looking to keep the current rate “through the summer” of next year – phrasing which avoided committing to a precise time.

As a result of the re-ignited debate, the forex markets rewarded the Euro. It rose by 0.6% against the US dollar and achieved a high of $1.176 – suggesting, of course, that the market is strongly in favour of a sooner rather than later rise.

Further evidence of this lay in the Euro’s performance against the British pound. The single currency managed to achieve a peak of 88.60 pence, in spite of the fact that British Prime Minister Theresa May had enjoyed a day of relative stability following ongoing questions over her leadership.

There was plenty of action across the rest of the forex markets, too.

The US government’s suggestion that 10% tariffs would be levied on a huge $200 billion of imports from China, as part of the ongoing tariff war between the two nations, had a real impact on how the markets performed.

Unsurprisingly, the focus of these market movements was in the Asia-Pacific region. The Chinese yuan dropped to an almost 12-month low point as a result of the announcement, while the currencies of countries which have strong economic and regional ties with China also dropped.

Australia, for example, is particularly vulnerable to the impact of ups and downs in the Chinese economy, because China is one of the Oceanic country’s largest export customers. Its currency, the Australian dollar, fell by 1.1% at one stage in the trading day.

The next big event on the horizon for the forex markets lies in tomorrow’s consumer price index data release in the USA, which takes place at 8.30am Eastern Standard Time on Thursday.

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