Canadian Dollar Forecast: Mounting Government Tensions see GBP CAD Exchange Rate Slump

Pound to Canadian Dollar Exchange Rate Slumps on Mounting Government Tensions

Fresh signs of discontent within the Conservative ranks saw the GBP CAD exchange rate slump sharply at the start of the week, exacerbating market worries over Brexit.

News that 40 MPs have now expressed a willingness to support a motion of no confidence in Theresa May weighed heavily on the Pound, raising the risk of the minority government losing its tenuous grip on power.

This is only eight signatories short of the number required to trigger a fresh leadership contest, suggesting that May is walking on decidedly thin ice at the moment.

A leaked letter from prominent Brexiteers Boris Johnson and Michael Gove further underlined the split nature of May’s cabinet, meanwhile, as the pair laid out demands for a harder form of Brexit.

All in all this leaves the Pound looking rather vulnerable, especially in the absence of any tangible progress towards an agreement on the terms of the UK’s departure from the EU.

CAD Exchange Rates Supported by Oil Bulls

A sustained bullish run in oil prices has helped to support the Canadian Dollar in recent days, with Brent crude trending in the region of a two-year high.

Mounting geopolitical tensions in the Middle East have kept demand for oil heightened, even as US production continues to ramp up.

There are also hopes that the OPEC-led production limiting agreement could see an extension in the coming months, helping to further erode the global oversupply glut.

Even so, with markets in a generally less risk-hungry mood on Monday the Canadian Dollar struggled to significantly capitalise on the weakness of the Pound.

Pound Rally Forecast on Rising UK Prices

The GBP CAD exchange rate looks set for further volatility over the course of the week, with investor focus falling on the latest UK consumer price index and average weekly earnings figures.

Any uptick in inflationary pressure could see the Pound pushed higher against its rivals, with rising inflation likely to encourage greater Bank of England (BoE) hawkishness.

Markets would be pleased by any signs that point towards the BoE tightening monetary policy further over the coming months, even as rising prices put consumers under pressure.

However, if wage growth fails to show signs of picking up in the three months to September this may see Sterling soften.

As some policymakers have already expressed concerns over the sluggishness of domestic wage growth a lack of improvement here could further undermine the case for the BoE to raise interest rates again.

Commentary from BoE policymakers is also likely to provoke jitters for the Pound on Thursday, even though any substantial policy hints seem unlikely.

Data Affecting This Week’s GBP/CAD Exchange Rate Forecast

14th November 09:30 UK Consumer Price Index (YoY) (OCT)

15th November 09:30 UK Average Weekly Earnings (3M/YoY) (SEP)

15th November 14:00 CA Existing Home Sales (MoM) (OCT)

16th November 14:00 UK Bank of England Governor Mark Carney Speaks

17th November 13:30 CA Consumer Price Index (YoY) (OCT)

GBP CAD Forecast: Weaker Canadian Inflation May Discourage BOC

Confidence in the Canadian Dollar may diminish ahead of the weekend, with forecasts pointing towards an easing in domestic inflationary pressure.

If the consumer price index shows a dip in October this is likely to encourage the Bank of Canada (BOC) to maintain a more neutral policy stance for the foreseeable future.

With policymakers already taking a less optimistic view of the Canadian economy any faltering in inflation could weigh heavily on CAD exchange rates.
On the other hand, an upside surprise may give investors incentive to favour the ‘Loonie’ over its lower-yielding rivals.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard