Despite Brexit concerns weakening GBP, the Pound to Canadian Dollar exchange rate has advanced and has held its ground near its best weekly levels, largely due to lower risk-sentiment and falling oil prices weighing on the ‘Loonie’.
GBP CAD has advanced from 1.6075 to above 1.6200 this week and briefly hit a weekly high of 1.6217 yesterday.
Pound (GBP) Slightly Stronger on Domestic Stats
Sterling was undermined by fresh Brexit concerns when markets opened this week.
The UK government published a set of Brexit positioning papers on key negotiation points, but EU diplomats didn’t appear to be impressed by the documents.
EU chief Brexit negotiator Michel Barnier asked Britain to take negotiations more seriously, while European Commission President Jean-Claude Juncker expressed dissatisfaction with the papers too.
UK Brexit secretary David Davis continued to avoid giving the EU a solid stance on how much the UK government is willing to pay in the UK-EU divorce bill, but has also criticised EU negotiators for inflexibility.
However, Wednesday’s UK data helped the Pound to avoid losses as it beat expectations.
July’s mortgage approvals and mortgage lending results were higher than expected, and the July Bank of England (BoE) consumer credit results were lower.
As high UK consumer credit had recently been a concern among economists, this slower consumer credit report helped to give the British currency some relief.
Canadian Dollar (CAD) Held Back by Risk Factors
The primary reason for recent GBP CAD strength, however, is the Canadian Dollar’s weakness.
Investors sold the risk-correlated Canadian Dollar earlier in the week in reaction to news that North Korea test fired a missile over Japan for the first time.
The missile landed in the ocean on Tuesday night and caused uncertainty and risk-off movement in markets.
Unlike other risky currencies though, the Canadian Dollar did not recover as risk-appetite began to heat up again. This is because a hurricane disaster in the US had a negative impact on prices of oil; Canada’s most lucrative commodity.
As Hurricane Harvey caused severe damage in Houston, Texas, analysts expect that the drop in oil refinement will lead to a big build-up of oil stocks. As a result, prices of the commodity fell.
GBP CAD Forecast: Canadian Growth Report in Focus
The Canadian Dollar is likely to continue driving GBP CAD movement for the remainder of the week and could push the pair back towards its opening levels depending on Thursday data.
Canada’s key Q2 and June Gross Domestic Product (GDP) results will be published during Thursday’s American session.
Analysts expect the yearly growth rate to have remained at 3.7% in Q2, while the monthly growth rate is forecast to have slowed from 0.6% to 0.1%.
If the growth report beats expectations, investors will become more confident about the improving strength of Canada’s economy and the Canadian Dollar will strengthen.
As for UK data, Markit will publish its August manufacturing PMI on Friday which could influence the Pound. The RBC will publish its August manufacturing PMI for Canada on Friday afternoon.