Although the Canadian participation rate dipped in September this failed to particularly weigh on CAD exchange rates. Any negative impact of this disappointing development was offset by a significant increase in full-time employment, suggesting that the domestic labour market is still tightening.
An unexpectedly sharp uptick in the Ivey PMI for September gave investors further reason to favour the Canadian Dollar ahead of the weekend, suggesting a higher level of business confidence.
Altogether this painted a more positive image of the economic outlook, even though this is unlikely to encourage the Bank of Canada (BOC) to return to a hawkish bias in the near future.
Bullish Oil Market Shores Up Canadian Dollar
Strong oil prices also helped to support the Canadian Dollar, even as rigs in the Gulf of Mexico started to come back online in the wake of Hurricane Nate.
Investors were encouraged by comments from OPEC officials, especially as Saudi Arabia made fresh cuts to its November exports in line with the production-limiting agreement.
With hopes still high that the OPEC-led deal could be extended further, in order to limit the downside pressure on oil prices, there was little reason not to favour the commodity at this juncture. Even so, while the global oversupply glut still looks to be easing, this leaves the oil market vulnerable to another bout of profit taking.
Even so, the GBP CAD exchange rate was able to regain some ground at the start of the week as the sense of UK political uncertainty eased somewhat.
As no immediate leadership challenge to Theresa May materialised over the weekend this offered the Pound a degree of support, even though concerns over the Prime Minister’s tenure remain.
Confidence in Sterling was dented once again, however, as August’s UK visible trade deficit widened far more sharply than forecast. This significant worsening of the trade gap indicates that any boost to exports from the weaker Pound is still yet to materialise, adding to worries over the domestic outlook.
Weak Housing Data Could Limit Canadian Dollar Appeal
However, as August’s Canadian building permits figure showed a sharper-than-expected dip of -5.5% on the month the outlook for the ‘Loonie’ is not entirely positive.
If Thursday’s new housing price index also surprises to the downside then this could weigh heavily on CAD exchange rates, pointing towards a weaker domestic housing market.
Even so, after the International Monetary Fund’s latest World Economic Outlook report labelled Canada as the fastest growing member of the G7 the downside potential of the Canadian Dollar may be somewhat limited. Unless there is a significant downturn in oil prices then the GBP CAD exchange rate could struggle to find any particular traction in the near term.
The Pound is likely to come under renewed pressure towards the end of the week, with the conclusion of the latest round of Brexit talks. Unless there are signs of significant progress towards an agreement on at least some of the key issues between the two sides then the mood of investors is likely to sour.
Volatility could also be in store for the GBP CAD exchange rate on the back of the Bank of England’s (BoE) third quarter credit conditions survey. If this highlights greater cause for concern over the domestic outlook and the increasing reliance on consumer credit the odds of an imminent BoE interest rate hike could fall.