GBP/CAD News: Dovish BoC Could Send Canadian Dollar Exchange Rates Reeling

Bank of Canada (BoC) Rate Outlook Weighs on Canadian Dollar Exchange Rates

Canadian Dollar (CAD) exchange rates plummeted last week after the Bank of Canada’s (BoC) latest interest rate decision indicated that borrowing costs won’t be raised again in the near future, but the ‘Loonie’ has managed to bounce back.

The GBP/CAD exchange rate dipped on Monday and is extending losses today despite a higher-than-forecast UK inflation figure.

UK Inflation Hits New Highs but Pound Sterling (GBP) Exchange Rates Still Struggle

While investors were surprised by a higher than expected UK inflation report on Tuesday, it only led to a limited boost for Pound Sterling (GBP) exchange rates and the currency generally continued weakening against rivals like the Canadian Dollar (CAD).

Britain’s November Consumer Price Index (CPI) was forecast to improve from 0.1% to 0.2% month-on-month and remain at 3.0% year-on-year.

Instead, we saw a monthly result of 0.3% and a yearly figure of 3.1%. This surprised investors who expected UK inflation to have already peaked.

It also caused speculation that the Bank of England (BoE) could be pressured into tightening UK monetary policy at some point in 2018 in order to tackle higher inflation. This briefly boosted the Pound.

However, analysts noted that the biggest reason for the rising inflation was the drop in the Pound’s value, so it’s expected that the high inflation rate would quickly drop if the Pound recovered.

Many economists were unsurprised by the data too. According to Jordan Rochester, currency strategist from Nomura;

‘The market had geared up for an above-3-percent inflation reading today anyway – if you look at the spread of top-rated economists, about half of them were looking for 3.1 percent,

The Bank of England had acknowledged there was a risk it would go higher, and also thought inflation would go to 3.2 percent last month. So the way the BoE could argue this is that this is just the FX devaluation feeding through just slightly higher than expected, but still feeding through.’

Overall, the inflation data did nothing to really change the Pound outlook.

Canadian Dollar (CAD) Exchange Rates Supported by Commodity News

Demand for the Canadian Dollar has been mixed since last week’s underwhelming Canadian ecostats were published, but the currency has been able to advance against Sterling this week.

Despite a lack of supportive domestic data, anticipation for this week’s central bank news and the rising price of key commodities have helped the Canadian Dollar hold its ground.

News that a major UK oil pipeline had to close due to damage led to Brent crude rising above US$65, a shift which supported the oil-correlated Canadian Dollar (CAD).

Data Affecting This Week’s GBP/CAD Forecast

13th December GBP Unemployment Rate (OCT)

13th December GBP Average Earnings incl. Bonus (OCT)

13th December GBP Claimant Count Change (NOV)

14th December GBP Retail Sales (YoY) (NOV)

14th December GBP Bank of England Interest Rate Decision

14th December CAD New Housing Price Index (YoY) (OCT)

15th December CAD Manufacturing Sales (MoM) (OCT)

GBP CAD Exchange Rate Forecast: UK Job Market Stats in Focus

The Pound to Canadian Dollar exchange rate is likely to experience volatility over the rest of the week as a result of more high-impact UK data and central bank news.

Britain’s October job market stats, including wage growth, will be published on Wednesday.

Wages excluding bonuses are forecast to remain at 2.2%, with wages including bonuses expected to rise from 2.2% to around 2.5%.

If wage growth disappoints the Pound could be pressured lower, but an encouraging result might push the Bank of England (BoE) into adopting a more optimistic tone when it meets on Thursday.

Canadian Dollar investors, on the other hand, may be moved by the Federal Reserve policy decision on Wednesday and a speech from Bank of Canada (BOC) Governor Stephen Poloz on Thursday.

Dovish comments from the BoC official could see the Canadian Dollar give up its recent gains.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon