In the past few months, the Canadian dollar traded between 2.2500 and 2.3000 against the British pound. This follows a sharp rise in the GBP/CAD exchange rate from a low around 1.9737 on March 2, 2006 to a recent high of 2.3567 on January 23, 2007. This rise was caused by the expectation of higher interest rates in the UK and the fact that interest rates in Canada stayed the same. At the same time, the value of the US dollar has gone down, making the exchange rate over US$2 per GBP and down to US$1.11 per CAD. This helps UK customers but hurts our southern neighbours.
In April, the Bank of England did not change interest rates in the UK. However, the fact that people think rates will go up in the coming months keeps Sterling strong. With a strong housing market and high consumer spending, the market thinks that the Monetary Policy Committee (MPC) will have to raise interest rates at least once more to try to slow down inflation. The headline Consumer Price Index (CPI), which is the most common way to measure inflation in the UK, is currently at 2.8% y/y. The target rate is 2%, and the most obvious way to stop prices from going up is to raise interest rates.
Since May 2006, when they went up to 4.25 percent, Canada's interest rates have stayed the same. There are still a lot of risks to the Canadian economy, and a slowdown in the US economy is making its way across the border. Since the US is Canada's biggest trading partner, any signs that the US economy is in trouble could hurt Canada's economy, but this hasn't really happened so far in 2007. In a way similar to the UK, the Canadian housing market is still strong. The Canadian Real Estate Association reported in February that sales of existing homes were strong and that the average price of a house was at a record high. Rising oil prices are also likely to keep the Canadian Dollar strong against the US Dollar, since oil exports make up a big part of the Canadian economy.
If you look back to March 2006, the low point for GBP/CAD was 1.9737 (02/03/06). This means that if you wanted to transfer GBP100,000, you would have to pay CAD32,300 more than you did in less than a year. So, anyone who wants to move money between Canada and the UK should pay close attention to the GBP/CAD exchange rate, since it can have a huge effect on how much money they will have in the future. If you want to move a lot of money, you should definitely keep an eye on the markets and be aware of international factors that can change the way currencies move. The US's debt and ongoing military interventions will have an effect on the US dollar's value against the Canadian dollar, but the weak US dollar will probably help their struggling economy by boosting exports. The recent trend of the Dow Jones to set new records and the rise in factory orders are both signs that the US economy is starting to turn around. If this is helped along by exports, it will be another reason for the US to try to keep the dollar weak.
Currency brokers are experts at telling immigrants and businesses about changes in currency and protecting them from the risks that come with changing exchange rates. Due to the size and number of people in the market, no one can predict how currencies will move in the future. However, both personal and business accounts can make a big difference in their bottom lines by getting advice from experts.
