Over a choppy week the GBP CAD exchange rate slowly edged lower, starting on Monday around 1.77 but ending the week at 1.76.
Poor Economic Data and BoE Dovishness Sees GBP End the Week Lower
GBP CAD started the week trending flatly, with the Pound unsettled by the results of the French election. Emmanuel Macron, the incoming President, had previously described Brexit as a ‘crime’, suggesting he may resist efforts during the divorce negotiations to grant the UK favourable terms.
After a rocky midweek, where a sparse data calendar saw the Pound on an uncertain footing, poor domestic data on Thursday tipped Sterling into a decline that lasted until the weekend.
March figures all printed below forecast, with industrial production falling -0.5% on the month instead of -0.4%, manufacturing contracting -0.6% instead of -0.2% and construction shrinking -0.7% instead of growing 0.3%. The trade deficit also widened significantly, growing from -£11.6 billion to -£13.4 billion.
The NIESR GDP estimate for April suggested the economy had grown just 0.2% – half what forecasts had predicted and slower than the 0.3% seen in the first quarter of the year overall.
The Bank of England (BoE) also disappointed, leaving interest rates on hold, while Governor Mark Carney even suggested monetary policy could be loosened further if necessary.
Canadian Dollar Wobbles on Oil Market Developments
Turbulence on the crude oil markets was undermining the Canadian Dollar last week, keeping the GBP CAD exchange rate volatile. Data released on Monday revealed that the recovery in US crude oil drilling continued for a 12th successive month, with US producers putting new oil rigs into operation for the 16th week running. This suggested that US oil companies were stepping into the market gap left by the OPEC agreement to cut production, keeping the global oil oversupply maintained and therefore weakening prices.
Midweek figures showed that US oil stockpiles had fallen more-than-expected, however, pushing the Canadian Dollar back up. Investors were also belatedly reacting to suggestions OPEC could extend the duration of its production cut past the middle of 2017, with Saudi Arabia and Russia having both floated the possibility.
Things took a turn for the worse on Thursday, although the poor UK data meant CAD continued to make gains. Credit ratings agency Moody’s cut the ratings for six major Canadian banks, warning over Canada’s unstable housing market.
GBP CAD Exchange Rate Forecast; Quiet Week for Canadian Data Unlikely to Give GBP a Respite
There is little Canadian data available this week, but the Pound may not be able to benefit from this, given the UK releases scheduled for publication.
Consumer price figures for April are released tomorrow and are expected to see inflation growth rise from 2.3% to 2.6%. Ordinarily this would boost hopes of an interest rate hike, but with the BoE remaining firm on the need to look past strong price growth and focus on the rest of the economy – which seems to be weakening – the Pound may not make much of an advance.
If Wednesday’s wage growth figures show that real wage growth – the rate of wages minus the rate of inflation – is negative, this will damage the outlook for consumer spending and therefore the whole economy, undermining GBP further.
Friday’s Canadian data consists of March retail sales figures and the April consumer price index. Forecasts are positive all round, so the ‘Loonie’ could end the week on the uptrend.