Pound Canadian Dollar (GBP/CAD) Exchange Rate Softens Despite Continued Uncertainty over Future of NAFTA
The Pound to Canadian Dollar (GBP/CAD) exchange rate has been unable to capitalise on the failure of talks to clarify the future of the NAFTA trade agreement.
Markets remain hopeful that the agreement can still be salvaged, in spite of President Trump combative comments on NAFTA, limiting the downside bias of the Canadian Dollar (CAD).
The negative impact of Friday’s Canadian inflation data also proved limited, even though the consumer price index contracted further than forecast on the month.
While the chances of the Bank of Canada (BOC) raising interest rates again in the near future seem increasingly slim CAD exchange rates were still supported by the relative weakness of the US Dollar (USD).
Even so, the Canadian Dollar remains vulnerable to any deterioration in wider market sentiment given the less-than-encouraging outlook for its economy at this juncture.
Brexit Worries Weigh Heavily on GBP/CAD Exchange Rate
Brexit returned to the spotlight at the start of the week, meanwhile, putting the GBP/CAD exchange rate under pressure.
A leaked cabinet report prompted investors to pile out of the Pound (GBP) on Tuesday morning, with the document suggesting that all three likely Brexit scenarios will see the UK economy growing at a slower pace.
This only added to jitters over divisions within the ruling Conservative Party, with infighting over its approach to Brexit still rampant as confidence in Theresa May’s leadership continues to wane.
All in all, Sterling’s outlook appears rather bearish thanks to the persistent uncertainty that will likely hang over the UK economy for some months to come.
Another sizable increase in net consumer credit in December added to the softness of GBP exchange rates, indicating that household reliance on borrowing is still rising.
Solid Canadian GDP Forecast to Improve Canadian Dollar Appeal
Further losses could be in store for the GBP/CAD exchange rate if November’s Canadian gross domestic product data points towards continued growth.
A stronger showing here may well offer the Canadian Dollar a rallying point, highlighting the relative resilience of the domestic economy.
However, a collapse of NAFTA would represent a significant hit to Canadian GDP, investors are likely to maintain some level of caution over the economic outlook.
Demand for the risk-sensitive CAD is likely to come under pressure ahead of the latest US Federal Reserve policy meeting and Donald Trump’s State of the Union address.
If the Fed looks to be moving towards greater hawkishness or the US reaffirms its stance regarding trade the Canadian Dollar could suffer.
GBP/CAD Exchange Rate Volatility Forecast on Manufacturing PMIs
January’s raft of manufacturing PMIs will also be in focus for the GBP/CAD exchange rate ahead of the weekend, with investors keen for an insight into how the UK and Canadian economies have performed at the start of the year.
Any signs of weakness within the UK manufacturing sector could weigh heavily on the Pound, further reducing the odds of the Bank of England (BoE) opting to raise interest rates again in the near future.
As the service sector accounts for the vast majority of UK economic activity any slowing here is likely to be ill-received.
A steady showing from the Canadian PMI, meanwhile, would extend the GBP/CAD exchange rate downtrend.