The Pound to Canadian Dollar continued recovering from its recent lows this week, as investors bought GBP from its cheapest levels and ‘Loonie’ demand plummeted as oil prices quickly dropped from last week’s rally. UK and Canadian data outlooks are quiet, but UK economic worries mean GBP/CAD is unlikely to return to August’s early levels of over 1.72.
Pound (GBP) Bought in Short-Cover Rally
Last week’s Sterling recovery rally was interrupted on Friday by new rumours and speculation about when the UK government would activate Article 50 – the formal process to Leave the EU.
The Pound had previously been edging higher thanks to solid July ecostats, including retail sales, which indicated that some sectors had not yet been affected by the Brexit vote.
Sterling attempted to continue its recovery this week, advancing on Monday and Tuesday. Investors had bought a record number of positions against the Pound following the Bank of England’s (BoE) August stimulus package.
These ‘short positions’ were closed following last week’s UK datasets as investors locked in on profit from the Pound’s low levels – in what is known as a ‘short cover’ rally. These movements are volatile, meaning Sterling’s current uptrend may be limited.
Canadian Dollar (CAD) Undermined by Poor Data, Drop in Oil Price
The Canadian Dollar’s early-August bullishness quickly faded last Friday, and the commodity-correlated currency continued to be in a poor position this week as oil prices quickly fell.
Last Friday saw the publication of Canadian retail sales for June and inflation figures for July – all of which came in below expectations.
Retail sales contracted at -0.1% month-on-month and CPI contracted at -0.2% from June to July. This left Canada’s yearly inflation score slowing from 1.5% to 1.3%.
Low hopes that oil producing nations could agree to an oil production freeze in September saw prices of oil begin to reverse the commodity’s previous price rally.
Analysts suggested that the jump to over US$50 per barrel was overvalued compared to the likelihood of a freeze as oversupply remained an issue. This caused oil to fall to as low as US$48.58 per barrel by Tuesday.
GBP CAD Forecast: Quiet Economic Calendar Ahead
A lack of influential domestic data may limit Pound to Canadian Dollar exchange rate movement this week.
One of the few UK reports to be aware of is Britain’s home loans report from BBA on Wednesday and preliminary Q2 UK growth on Friday.
While growth figures are usually influential, this data was collected before the Brexit vote in late-June and thus will not indicate the direction of the UK’s economic growth since the result. Subsequently the figures might not have much impact on GBP.
Further commodity-related drops for CAD offer the Pound the most potential to advance going forward.