As the latest Canadian gross domestic product data surprised to the upside this helped to drive the GBP CAD exchange rate sharply lower on Thursday.
Markets were encouraged by the latest signs that the economy is continuing to expand at a solid pace, with the annualised second quarter GDP accelerating to 4.5%. This confirmed that Canada is still the fastest growing G7 economy, giving Bank of Canada (BOC) policymakers greater cause for confidence.
Even though the rate of growth did ease a little on the month in June this was not enough to limit the bullishness of the Canadian Dollar.
The commodity-correlated CAD was given further cause for confidence ahead of the weekend as the latest US labour market figures proved disappointing.
With the Federal Reserve looking less likely to achieve another interest rate hike before the end of the year, weakening demand for the US Dollar, this gave the ‘Loonie’ another boost.
A sustained rally in oil prices also helped to bolster the appeal of the Canadian Dollar, with US output yet to recover from the impact of Hurricane Harvey and its aftermath.
GBP Remains Vulnerable on Muted Service Sector Growth
Brexit-based jitters continued to weigh on the Pound, meanwhile, after the third round of talks ended without any signs of material progress.
There are significant concerns over the fact that the UK and EU delegations still do not appear to be any closer to an agreement on any of the major points.
Unless talks begin to pick up momentum soon fears of the prospect of a hard Brexit are likely to keep GBP exchange rates biased to the downside, with nearly six months of the two year negotiation window already gone.
However, even though the UK services PMI fell short of forecast to show a modest easing on the month the mood towards the Pound still improved on Tuesday morning.
Investors were quick to shrug off the mildly disappointing figure, considering that the domestic service sector still remains in a relatively solid state of expansion. Nevertheless, with signs pointing towards a continued loss of momentum within the UK economy this could leave the Pound vulnerable to fresh pressure in the coming days.
Hawkish BOC Could Boost Canadian Dollar Further
There is no real expectation for the BOC to alter monetary policy at its latest meeting on Wednesday. Even so, the Canadian Dollar is likely to trend higher as markets speculate over the likelihood of policymakers adopting a more hawkish tone at this juncture.
If the BOC does appear to be on course to raise interest rates again in the near future this could encourage the ‘Loonie’ to extend its gains across the board. On the other hand, should policymakers fail to express greater confidence in the domestic outlook the GBP CAD exchange rate could find some support.
Confidence in the Pound could ease, meanwhile, in response to Friday’s NIESR gross domestic product estimate for the three months to August.
While forecasts point towards a slight uptick from 0.2% to 0.3% there is still ample potential for a fresh downside surprise here. Given the distinctly mixed nature of August’s PMIs the economy may not be in such a resilient state as markets have hoped.
Any deterioration in July’s visible trade balance figure could also give investors fresh reason to sell out of Sterling ahead of the weekend.