The Pound to Canadian Dollar exchange rate has fallen to its worst levels since late April today following a string of negative UK announcements.
Pound Weakens after Tory Policy Shift, Manchester Attack
Among the factors lowering Pound demand have been a recent Conservative policy U-turn and the Manchester terror attack.
In the former case, Theresa May seemingly lost face when she announced that there would be a cap on social care costs. While considered good news for pensioners, the policy shift went against previous claims that there wouldn’t be a cap on care costs.
The horrific terror attack in Manchester on Monday night has also reduced demand for Sterling.
Meanwhile, today’s UK data has shown a large expansion in government borrowing in April, further battering GBP.
Canadian Dollar Gains on TPP Talk
The Canadian Dollar’s advance today comes after a pair of economic announcements.
On the positive side, Canadian trade officials agreed to proceed with the Trans-Pacific Partnership (TPP) trade deal, along with 10 other countries.
The deal was considered invalid after the US withdrew in January, but hopes are that it can go ahead without US involvement.
Less positively, Goldman Sachs has estimated a 30% chance of a Canadian housing market ‘bust’, equalling a drop of 5% or more in house prices on the year.
GBP/CAD Forecast
For the rest of the week, Pound/Canadian Dollar exchange rate movement may occur as a result of Thursday’s second estimates for Q1 GDP growth.
Quarter-on-quarter GDP is predicted to slow from 0.7% to 0.3%, while an annual rise is forecast from 1.9% to 2.1%. Yearly results are usually more important, but a quarterly slowdown may have a greater negative impact. This is because it covers the months before Brexit talks properly begin, so may reflect national business sentiment ahead of key negotiations.
Business investment previously fell by -0.9%, so a significant rise could allay current Brexit fears and boost GBP demand.
The Pound could also be influenced by general election polling. Polls could go either way after the Conservative policy change – voters may see the Conservatives as more willing to listen, which could raise Tory polling performance.
On the other hand, polls may show waning support for the Conservatives as this latest move represents a second significant reversal of policy (after the national insurance scandal in March). This could lead to perceptions of weaker leadership, dragging popular support down with it.
If polls do show less enthusiasm for the Conservatives, then the Pound may slump over fears of a lesser Conservative majority after the election.
The main Canadian data this week will be Wednesday’s Bank of Canada (BOC) interest rate decision.
The BOC is not expected to change interest rates from 0.5%, but could still shift CAD with commentary on the policy outlook. If officials hint at an upcoming interest rate hike, then the CAD GBP exchange rate could improve.
Ending weekly CA news will be Friday’s budget balance for March, which previously showed a surplus of 1.29bn. If this expands then further Canadian Dollar gains could follow.