Oil prices have continued to fluctuate in response to speculation over the likelihood of producers agreeing to some manner of output cap or freeze. While there have been some positive indications from oil ministers the message has remained far from conclusive, with markets doubtful that any agreement can be reached. As a result the Canadian Dollar has seen some volatile trading over the last week, continuing to take most of its cues from the outlook of the oil price.
Even so, the GBP CAD exchange rate remained on a general downtrend throughout the week, weighed down by the relative weakness of the Pound itself. Although August’s public sector borrowing data bettered expectations it nevertheless pointed towards the UK economy overshooting its target for the 2016-2017 fiscal year. This indicated that Chancellor Philip Hammond will have less room to manoeuver and boost spending in order to stimulate the economy in the Autumn Statement.
Market risk appetite strengthened in the wake of the Federal Open Market Committee’s (FOMC) September policy meeting, with investors interpreting the general tone of policymakers as less hawkish. While three members of the FOMC did vote to raise interest rates immediately the odds of a 2016 rate hike remained limited, particularly given Fed Chair Janet Yellen’s continued stress on the data-dependence of any policy move. In response the Canadian Dollar was encouraged to climb higher, benefitting from the resultant softening of the US Dollar.
Brexit Worries Reignited to Dent Pound Demand
Confidence in the Pound plunged sharply on Friday morning, however, after comments from Foreign Secretary Boris Johnson circulated. Investors were not enthused by the suggestion that Article 50 could be triggered in early 2017, with hopes appearing to have been pinned on exit negotiations being pushed back further. In response the GBP CAD exchange rate fell to a monthly low of 1.6894. The UK’s departure from the EU and its future relationship with the world remain uncertain, something that could continue to drag on sentiment for some time to come.
Despite the glum mood of markets, though, the Pound was able to regain ground against the ‘Loonie’ ahead of the weekend. This was due to a decidedly disappointing raft of Canadian data, which undermined confidence in the outlook of the domestic economy. Of particular concern was an unexpected dip in August’s Consumer Price Index, which slowed from 1.3% to 1.1% on the year. With inflationary pressure falling back there was speculation that the Bank of Canada (BOC) could be encouraged to return to an easing bias, prompting fresh Canadian Dollar selling ahead of the weekend.
The appeal of the Pound remained limited on Monday thanks to a survey of the financial sector showing its third consecutive quarter of decline in September. While consumer confidence has proven resilient in the wake of the Brexit vote, the outlook among businesses remains persistently weak. This could bode ill for the health of the domestic economy, which could suffer if firms show an increasing inclination to put off major decisions while the current state of uncertainty prevails.
Weaker Canadian GDP Forecast to Boost GBP CAD Exchange Rate
Thursday’s UK net consumer credit and mortgage approvals figures could offer the GBP CAD exchange rate a rallying point, provided that lenders are found to have maintained an optimistic mood in August. Any signs of faltering confidence, however, could put renewed pressure on the Pound. Developments in the Brexit situation are also expected to influence Sterling for the foreseeable future, with any fresh indications as to the course of negotiations likely to provoke market jitters.
Risk appetite is expected to remain the primary driver of the Canadian Dollar through much of the coming week, as investors look for any potential signs of a deal from OPEC members meeting in Algeria. If producers ultimately walk away without making any tangible progress towards a deal, as markets fear, the ‘Loonie’ is expected to trend lower across the board.
Also of importance to the GBP CAD exchange rate this week will be July’s Canadian Gross Domestic Product data. Should the domestic economy show further signs of slowing on the year then the Canadian Dollar is likely to reverse any of the week’s gains, with a disappointing showing here set to increase the pressure on the BOC to return to an easing bias.