Although the Pound Sterling to Canadian Dollar exchange rate initially benefitted from last week’s news that the UK’s inflation rate had ticked higher in March, this stronger showing failed to keep the pairing on an uptrend for long. Worries over the UK’s future in the European Union continued to mute the appeal of the Pound, prompting the GBP/CAD exchange rate to cede its gains and slump from 1.8441 to 1.8200 on Tuesday afternoon.
Confidence in the ‘Loonie’, on the other hand, was bolstered on Wednesday by a stronger-than-expected improvement in the latest Chinese trade data. Exports jumped from -20.6% to 18.7% on the year in March, a bullish result that seemed to suggest that the world’s second largest economy is starting to recover. With a more robust Chinese economy boding well for an increase in oil demand, and risk appetite sharply boosted, the Canadian Dollar trended higher.
Perhaps more crucially, the Bank of Canada (BOC) opted to leave interest rates on hold at its latest policy meeting. Policymakers expressed a reassuring level of confidence in the positive impact of the federal budget put forward at the end of March. The generally less dovish tone of comments increased demand for the ‘Loonie’, pushing the GBP/CAD currency pairing down to a low of 1.8148.
Canadian Dollar Dragged Down by Oil Disappointment
It was a rather different tone from the Bank of England (BoE) on Thursday, where the Monetary Policy Committee (MPC) voted unanimously to leave interest rates at their more than seven-year low of 0.50%.
With fresh emphasis placed on the economic uncertainty linked to the upcoming EU referendum the BoE indicated that it will maintain a more cautious attitude towards domestic data. This suggested that the central bank is unlikely to hike before November, a bearish prospect for the Pound that helped push it to a fifteen-month low of 1.8123 against the Canadian Dollar.
Over the weekend a number of oil producers met to discuss the possibility of an oil production freeze.
Markets had boosted the price of crude strongly ahead of this much-vaunted meeting, leading to a sharp 5% decline when it was announced that no agreement had been reached. Talks were rapidly derailed when Saudi Arabia unexpectedly renewed its earlier insistence that Iran had to be part of any deal, an impossible demand considering the nation in question’s lack of attendance.
Thus the GBP/CAD exchange rate started the week on a sharp gain, jumping to a multi-day best of 1.8435. However, a report from Chancellor George Osborne helped to dent the Pound on Monday as the Treasury forecast that a ‘Brexit’ could potentially cost British households up to £4,300. While this figure was rapidly dismissed by ‘Leave’ campaigners the gloomy prospect nevertheless weighed on the Pound.
Weaker Canadian Inflation Forecast to Boost GBP/CAD
With the frustration generated by the collapse of the Doha meeting it seems unlikely that oil producers will be able to reach a coordinated plan to tackle the current global supply glut. Consequently the value of crude oil is expected to retreat further in coming days, dragging the Canadian Dollar lower with it.
Demand for Pound Sterling could be bolstered by the latest raft of UK employment data, particularly as forecasts suggest that average weekly earnings ticked higher on the year in the three months to February. While a stronger showing is unlikely to make the BoE take a more hawkish line on monetary policy in the near future, it would nevertheless encourage some additional confidence in the ailing Pound.
Friday’s Canadian Consumer Price Index report is expected to trigger further volatility for the GBP/CAD exchange rate, as the only significant piece of Canadian data due for release this week. Inflationary pressure is expected to have softened on the year from 1.4% to 1.2%, a fresh sign of slowing within the domestic economy which could weigh heavily on the ‘Loonie’. Any upside surprise, on the other hand could see the Canadian Dollar recovering some of its lost ground.
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