After losing ground over the bank holiday weekend the GBP/CAD exchange rate remained on a bearish trend thanks to mounting worries over the EU referendum. Recent polls have suggested either a narrow gap between the two camps or pointed towards a greater ‘Leave’ campaign lead. This increasing swing in support towards ‘Brexit’ has weighed heavily on the Pound, keeping the currency on a generally softer trend across the board.
Confidence in the Canadian Dollar weakened, however, on Tuesday with the release of the latest Canadian GDP data. Investors were not encouraged to see that growth had weakened further than expected in March, clocking in at 1.1% rather than the forecast 1.4%. This naturally raised concerns over the outlook of the domestic economy, particularly as the full impact of the Alberta wildfire remains to be seen. Investors were also discouraged by hawkish commentary from members of the Federal Open Market Committee (FOMC), with the ‘Loonie’ dented by the increasing odds of an imminent US interest rate hike.
A larger-than-expected dip in Nationwide House Prices added downside pressure to the GBP/CAD exchange rate on Wednesday, as signs of possible slowdown spread to the UK housing market. This overshadowed a more positive Manufacturing PMI result, which showed the sector edging back into growth territory.
Lack of OPEC Agreement Increased Pressure on Canadian Dollar
Oil prices saw some particularly pronounced volatility over the course of last week, with investors nervous ahead of the latest bi-annual OPEC meeting. Ultimately members were unable to come to an agreement on any change in production guidelines, failing to reinstate a ceiling on production levels and thus prompting the price of Brent crude to drop sharply. With crude trending below the crucial US$50 per barrel mark once again this saw the Canadian Dollar pulled down by a decrease in commodity-currency appeal, allowing the GBP/CAD exchange rate to climb back to 1.8978.
Demand for the Pound recovered somewhat on Friday morning as the UK Services PMI for May strongly bettered forecasts to rise from 52.3 to 53.5. As the service sector accounts for the majority of the country’s economic growth this more bullish result offered some cause for optimism, also pushing up the Composite measure. While some are still cautious that the economy remains so heavily reliant on the services industry, this nevertheless eased concerns that there could be an underlying weakness within the UK economy.
The GBP/CAD exchange rate was unable to hold onto its resultant gains for long, however, as markets were moved by the latest US payrolls data. As the headline employment figure came in sharply below estimates the odds of an imminent interest rate hike from the Fed were slashed dramatically. Consequently a surge in risk appetite buoyed the ‘Loonie’, pushing the GBP/CAD currency pair to a fresh low of 1.8766.
‘Brexit’ Worries Weaken GBP/CAD Exchange Rate
Although safe-haven demand increased on Monday morning, eroding some of the Canadian Dollar’s strength, this was counteracted by the pronounced bearishness of the Pound.
With the newest raft of opinion polls continuing to point towards higher support for the ‘Leave’ campaign, the GBP/CAD exchange rate extended its slump, dropping to a twenty-day low of 1.8615.
Sterling could recover some of its losses, however, if the week’s telephone opinion polls do not indicate a particular shift towards ‘Brexit’. Speculation over the referendum is expected to remain the dominant influence over the Pound in the final run-up to the June vote. Even so, if Wednesday’s NIESR Gross Domestic Product estimate indicates continued slowing in output the GBP/CAD exchange rate is expected to weaken further.
Friday’s Canadian Unemployment Rate is not expected to see any change on the month, being forecast to hold steady at 7.1%. This could offer some support for the ‘Loonie’, particularly if the latest housing data points towards continued strength in the domestic economy. With the Bank of Canada (BOC) having adopted a more neutral outlook on monetary policy at its last policy meeting, further signs of robust economic health are likely to bolster confidence in the Canadian Dollar.
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Summary of major upcoming data releases that we think may move the market.