Despite hints that the Bank of Canada (BOC) was getting closer to tightening Canadian monetary policy again, the Pound Canadian Dollar exchange rate has fluctuated over the past week due to concerns over recent Canadian data.
GBP CAD opened last week at the level of 1.7194. The pair still dropped slightly, closing at 1.7140, but this was due to Brexit concerns weighing on the Pound.
Pound (GBP) Climbs Despite Brexit Uncertainties
Last week’s UK data had little impact on the Pound outlook, as investors (and the Bank of England) remained too concerned about the Brexit process to be optimistic about Britain’s economy.
While Britain’s UK retail sales results were highly impressive and UK wage growth beat expectations slightly, the Bank of England (BoE) noted that the Brexit process remained the biggest uncertainty in the bank outlook.
The bank also indicated that it was only likely to hike UK interest rates gradually in the coming years, which put off hawkish Pound investors.
On top of this, the latest Brexit news has concerned investors. Traders were briefly pleased with news that the first phase of Brexit negotiations had seemingly reached an end, but indications that the second phase may not begin until March 2018 left markets jittery.
As the UK is planning to leave the EU in March 2019, this could leave negotiators with less than a year to secure a post-Brexit transitional period or any trade deals.
The news concerned investors, who had been hoping for trade talks to start as soon as possible and give the UK government enough time to build new trade deals with the EU.
Monday’s UK industrial trend data from CBI beat expectations slightly though, which helped the Pound to gain against a weaker Canadian Dollar.
The CBI report result was forecast to slip to 14, but remained at 17.
Another CBI report for distributive trades will be published on Wednesday but is unlikely to be notably influential.
The most notable upcoming UK data will be Thursday’s public sector net borrowing from November, and the final Q3 Gross Domestic Product (GDP) results on Friday.
Even if these fail to inspire much movement though, the Pound is more likely to be influenced by Brexit developments regardless.
Any fresh indications of what angle the UK government will take in Brexit trade talks, or what kind of deals the EU will even allow, could influence Sterling strength.
Canadian Dollar (CAD) Hawks Hope for Strong Data
The Canadian Dollar has been unable to capitalise on Sterling’s weakness over the past week and has only pushed GBP CAD down slightly. The pair easily recovered most of last week’s losses on Monday morning.
Despite a relatively optimistic tone from Bank of Canada (BOC) Governor Stephen Poloz during a speech last week, Canadian Dollar investors have been disappointed in recent Canadian ecostats.
Canadian house prices fell short of expectations in last Thursday’s new housing prices report from October, while Friday’s Canadian manufacturing sales report unexpectedly revealed a contraction.
Canadian manufacturing was forecast to have improved at 0.8% month-on-month in October, but instead came in with a disappointing -0.4%. The previous figure was revised lower from 0.5% to 0.4%.
Eric Viloria from Wells Fargo also believes that the Bank of Canada’s overall vague tone is weighing on Canadian Dollar appeal;
‘Just looking at the way the Bank of Canada communicates, it’s not as clear, for instance, as the Fed,
That does contribute a bit more in the price swings in the Canadian Dollar.’
As a result, Canadian Dollar traders are highly anticipating key Canadian data due in the coming days, hoping they will be strong enough to boost the chances of the BOC continuing its interest rate hike cycle soon.
Wednesday will see the publication of Canada’s October wholesale sales results, but the most influential data will come in on Thursday and Friday.
October’s retail sales and November’s inflation reports will be published on Thursday, followed by October’s growth report on Friday.
If key Canadian stats like retail sales, inflation and growth all beat expectations, the Canadian Dollar would see a surge in demand and BOC rate hike bets would jump.
On the other hand, if the reports disappoint the Canadian Dollar could slump and even a weak Pound could push GBP CAD higher towards the end of the week.
GBP CAD Interbank Rate
At the time of writing this article, the Pound Canadian Dollar exchange rate trended in the region of 1.7210. The Canadian Dollar to Pound exchange rate traded at around 0.5805.
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