Markets were distinctly disappointed by the dovishness on display at the Bank of England’s (BoE) August policy meeting.
As only two policymakers voted in favour of an immediate interest rate hike and the Bank lowered its growth forecasts the meeting offered little in the way of encouragement to the Pound. This saw the odds of any imminent BoE interest rate hike diminish, prompting the GBP CAD exchange rate to plunge sharply in the wake of the meeting.
Although the Canadian unemployment rate fell unexpectedly from 6.5% to 6.3% in July this was not enough to particularly bolster the appeal of the Canadian Dollar.
Investors were more concerned to find that the corresponding participation rate had also dipped, indicating that a smaller number of Canadians are now active in the labour market.
Altogether this did little to improve confidence in the underlying strength of the Canadian economy, helping the GBP CAD exchange rate to regain some ground ahead of the weekend even though downside pressure remained.
Canadian Dollar Dented by OPEC Jitters
An increasing sense of market risk aversion weighed on the ‘Loonie’ as global geopolitical tensions mounted.
With the UN enacting fresh sanctions on North Korea investors were encouraged to pile back into safe-haven assets, leaving the commodity-correlated Canadian Dollar biased to the downside.
Jitters equally arose in anticipation of the latest Organisation of the Petroleum Exporting Countries (OPEC) meeting, with producers thought to be showing less commitment to sustained output curbs.
While Brent crude continued to trend above the psychologically important US$50 per barrel mark this failed to offer any significant support to CAD exchange rates.
Signs that the UK housing market is losing at least some of its momentum dampened the appeal of the Pound at the start of the week, meanwhile.
As the Halifax house price index eased from 2.6% to 2.1% in the three months to July this appeared to signal a deterioration in consumer confidence as the outlook of the domestic economy remains unclear.
Brexit-based uncertainty also picked up as a result of conflicting reports over the supposed amount which the government is prepared to pay in its EU divorce bill.
With Downing Street quick to rubbish claims that it is looking at a 40 billion Euro bill a sense of confusion continued to prevail, leaving the GBP CAD exchange rate rather lacking in support.
Narrowed UK Trade Deficit Could Offer GBP Support
Thursday’s raft of UK production and trade data could give the Pound a rallying point, providing that output is found to have strengthened after May’s poor showings.
Any solid rebound in production could encourage the GBP CAD exchange rate to trend higher, indicating that the economy is not coming under excessive pressure at this juncture. A narrowing of the visible trade deficit would also give investors reason to buy back into Sterling, even though government debt remains at an elevated level.
Support for the Canadian Dollar could weaken in response to the latest domestic housing market data, meanwhile.
Building Permits are expected to show a sharp contraction of -1.9% on the month in June, suggesting that the market is softening. Hopes are not particularly high for the corresponding new housing price index either, which could leave CAD exchange rates on a fresh downtrend as confidence in the Canadian economy diminishes further.