Falling odds of a ‘Brexit’ vote in the UK’s EU referendum and concerns over the impact of the Alberta wildfires have caused significant appreciation in the Pound Sterling to Canadian Dollar exchange rate over the past seven days.
Midweek ‘Brexit’ Referendum Developments Catapult GDP Higher
Wednesday’s developments triggered a two-day rise in the GBP/CAD exchange rate. Labour market data showed that UK employment edged up again, creating a new record high. The claimant count rate fell and the number of people claiming unemployment benefits dropped instead of rising as forecast. The three months to March showed that 44,000 new jobs were created, despite forecasts for no change.
Although wage growth slowed slightly, investors were distracted by the results of a new YouGov referendum poll showing that the ‘Remain’ campaign had doubled its lead over the ‘Leave’ camp to 4%. This helped further lessen the odds of a ‘Brexit’ after Tuesday’s phone poll by ORB gave ‘Remain’ a 15-point advantage over ‘Leave’.
The Pound was further boosted on Thursday by April’s UK retail sales figures, which vastly eclipsed forecasts. Month-on-month (MoM) sales grew 1.5%, while year-on-year (YoY) sales increased 4.2%, in both cases more than double the median market expectations. However, gains were trimmed towards the weekend thanks to comments from Bank of England (BoE) policymaker Gertjan Vlieghe. The BoE policymaker warned that the bank may have to cut interest rates even if the UK votes to remain in the European Union.
Nevertheless, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate ended the week trading over 2% higher than the week’s opening levels.
Economic Impact of Wildfires Weakens Canadian Dollar Sentiment
The key factor weakening the Canadian Dollar over the past seven days has been speculation and forecasts regarding the economic impact of the wildfires gripping Alberta. After several days of rough estimates, one report on Wednesday put the cost of the blaze to oil production at nearly -CA$1 billion (-£528 million). Analysis suggested that the fires had disrupted production in Canada’s oil sands region by -1.2 million barrels per day for a two week period.
The ‘Loonie’ managed to regain some ground on Friday following the release of the latest consumer price index figures. Core inflation slowed marginally less-than-expected from 0.7% to 0.2% on the month, while yearly inflation ticked up against forecasts from 2.1% to 2.2%. Non-core price growth slowed from 0.6% to 0.3% on the month as predicted, while the yearly figure accelerated to the anticipated 1.7%.
However, the Canadian Dollar still ended the week considerably lower against the Pound.
Pound Sterling Reclaims End of Week High as ‘Brexit’ Fears Dim
Today’s latest referendum poll has given the ‘Remain’ campaign a 13-point lead against the opposition, with just a month to go before the polls open. Key amongst the poll’s findings is the fact that over 65s – historically a key demographic for ‘Brexit’ support – are turning away from the campaign to leave. Also of importance was the fact that the latest figures represent a 13-point lead amongst people who definitely intend to vote. Among the wider voter population, the lead for ‘Remain’ support increased to 20%, with the backing of 58% of voters.
While the Canadian Dollar is strengthening on the fact that domestic oil has re-entered the markets, new predictions from various financial institutions that the Canadian economy may shrink in the second quarter has limited ‘Loonie’ strength. GBP/CAD has been able to make gains of over 1%.
Pound Sterling to Canadian Dollar Exchange Rate Forecast: BOC Rate Decision and UK GDP Ahead
After an empty data calendar thus far this week, tomorrow finally brings a high impact Canadian development. The Bank of Canada (BOC) meets to decide interest rates, although currently the forecasts are for the benchmark rate to remain frozen at 0.5%.
There is no UK data due until Thursday, when a slew of releases will include the preliminary GDP figures for the first quarter of the year. Current forecasts are for a flat growth rate of 0.4% on the month and 2.1% on the year.
Also potentially strengthening or weakening the Canadian Dollar on Thursday will be the US durable goods orders figure. This is considered to be one of the key pieces of data in the run-up to the next Federal Open Market Committee (FOMC) meeting in June. A strong figure here will increase the likelihood of tighter US monetary policy, which would have a negative impact upon the Canadian economy and thus weaken the ‘Loonie’.