Although oil price futures are bleak against the backdrop of a strong US Dollar and global economic concerns, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate continues to struggle.
This is mostly the result of Sterling weakness as traders react to EU referendum opinion polls indicating the vote will be very close, but also in response to speculation of long-term delays to a Federal Reserve cash rate increase and hopes that the Bank of Canada (BOC) will avoid further cuts thanks to a swelling housing bubble.
Canadian Dollar (CAD) Edges Higher
Last week the Canadian Dollar struggled versus its major peers in response to speculation of significant damage to export growth following the wildfire that spread through the oil sands region.
Fluctuating crude oil prices and ever-changing market sentiment have also weighed on the ‘Loonie’ (CAD), although reduced odds of a near-term Federal Reserve cash rate increase did alleviate some of the pressure on the Canadian Dollar.
On Monday the ‘Loonie’ edged higher versus a number of its peers and registered healthy gains against the Pound. This is despite falling crude oil prices and bleak crude futures amid concerns geopolitical turmoil will keep prices low.
The uptrend can be linked to ongoing speculation that the Fed will not be in any hurry tighten policy amid domestic political uncertainty and geopolitical turmoil in Europe and Asia.
Traders will be looking ahead to Friday’s Canadian inflation data. If inflation fails to improve in line with expectations the ‘Loonie’ could dive amid concerns relating to BOC intervention.
However, the swelling housing bubble in Canada could prevent BOC policymakers from intervening and limit any potential impact from additional stimulus measures.
Pound Sterling (GBP) Dives
Last week the Pound managed to make some steady gains. Although still holding a weakened position, GBP/CAD crept higher as ‘Brexit’ volatility cooled and domestic data had a greater impact.
However, the UK unit dived over the weekend as investors reacted to an ORB opinion poll for the Independent newspaper that indicated ‘Leave’ would be victorious by 10 percentage points.
There have been fresher opinion polls released since the ORB’s, all of which indicate the vote will be close. This has done little to alleviate uncertainty, however, which has been evident in the Pound’s continued downtrend during Monday’s European session.
There will, however, be a number of significant domestic ecostats over the coming week with potential to cause changes for the Pound.
The Bank of England (BoE) interest rate decision is unlikely to be hugely impactful in and of itself given that nearly all analysts do not expect any changes at this juncture. The accompanying meeting minutes and any comments from BoE policymakers may be more impactful, however.
Inflation data will also be of significance considering that low inflation has been a persistent concern for BoE policymakers. If inflation fails to improve the Pound is likely to extend losses to fresh 2016 lows.
Volatility Predicted on Fed Rate Decision, UK CPI and EU Referendum News
There are a number of ecostats and political developments with potential to cause significant volatility for the GBP/CAD exchange rate this week. The aforementioned high-impact domestic data publications will almost certainly have an impact.
In addition, the Federal Reserve interest rate decision could be impactful. If the accompanying press conference sees Fed Chairwoman Janet Yellen deliver a hawkish speech with regards to the timing of future rate hikes, the Canadian Dollar could soften considerably.
Any developments regarding the EU referendum will also be likely to cause changes for the pairing. Additionally, market sentiment and crude oil prices will have a bearing.
Over the past week, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was trending within the range of 1.8043 to 1.8705.