The Pound to Canadian Dollar exchange rate was one of the few Sterling currency pairs to lose value on Monday as fresh oil news saw the price of the commodity surge and boosted CAD. An increase in demand for risky currencies left the ‘Loonie’ strong on Tuesday, with GBP/CAD trending flatly in the region of 1.72.
Pound (GBP) Boosted on Services Stats
The last week has been a bullish one for the Pound, with the British currency reaching new highs against many currency peers as August’s data smashed expectations.
Monday’s session saw the release of the UK’s service sector data and the report completed a trio of better-than-expected August PMI results from Markit.
Manufacturing, Construction and Services all beat expectations by around 3 points each, with Manufacturing and Services unexpectedly scoring growth despite projected contractions.
Thanks to the solid PMI prints, Markit’s Composite PMI came out at 53.6, beating forecasts of 50.8 and July’s contractive score of 47.5. This indicated to markets that Britain’s economy had rebounded somewhat in August from July’s Brexit-vote influenced downtick.
Not only did this continue a trend of better-than-expected August data, but also increased hopes that Britain’s economy would not enter recession before Article 50 is activated. Additionally, this led to investors edging down bets of further Bank of England (BoE) stimulus.
The GBP/CAD exchange rate hit a high of 1.75 last week.
Canadian Dollar (CAD) Firms as Oil Price Hopes Increase
Meanwhile, the oil-correlated Canadian Dollar had a very mixed August, initially rallying as oil prices surged to above US$50 a barrel on hopes that oil-producing nations would agree on a production freeze.
However, once hopes faded, the ‘Loonie’ itself also dropped. However, CAD’s luck returned last Friday and Monday as an increase in demand for risk-correlated currencies benefitted the Canadian Dollar.
After a disappointing US Non-Farm Payrolls report on Monday, many investors flocked from the US Dollar to its Canadian neighbour.
On Monday, the Canadian Dollar’s strength increased further due to news that leaders of oil-producing nations, Russia and Saudi Arabia, had agreed to cooperate in global efforts to improve prices of the commodity.
Oil prices have struggled in recent years due to oversupply and high production, with oil-producers unable to agree on capping production.
GBP/CAD Forecast: Wednesday is Key for Pound/‘Loonie’ Exchange Rate
The Pound to Canadian Dollar exchange rate may struggle to advance for the remainder of the week as demand for risk-correlated currencies increases as the week goes on.
However, Wednesday’s session has the potential to set the tone for GBP/CAD movement going forward, due to key events such as NIESR’s August UK growth estimates and the Bank of Canada’s (BOC) September policy meeting.
Both are scheduled for the afternoon. The BOC is unlikely to alter monetary policy this week and analysts expect rates to be left frozen at 0.5%, but if the bank adopts a relatively optimistic tone the Canadian Dollar could sustain its current strength.
NIESR’s August Gross Domestic Product (GDP) estimate for Britain is the best chance Sterling has at continuing its strong run this week. Some forecasts put the score at a very low 0.1%, which is unlikely to cheer investors.
However, a higher score than this could see Sterling reversing its recent losses against the ‘Loonie’, even if the Canadian Dollar remains strong itself.