Update: Surprise Thawing in Korean Tensions Boost Canadian Dollar Exchange Rates
Reports of a diplomatic breakthrough on the Korean peninsula saw the Pound to Canadian Dollar (GBP/CAD) exchange rate come under some degree of pressure.
The suggestion that North Korea could be willing to discuss denuclearisation encouraged investors to pile back into higher-yielding assets, such as the Canadian Dollar, as the general sense of market risk appetite improved.
Even so, CAD exchange rates remain vulnerable and could see fresh weakness if this afternoon’s Ivey manufacturing PMI falls short of forecast.
Any evidence of domestic softness would give the Bank of Canada (BOC) further incentive to leave interest rates on hold for the foreseeable future, to the detriment of the Canadian Dollar.
Concerns Over Global Trade and NAFTA Boost Pound Canadian Dollar (GBP/CAD) Exchange Rate
Ahead of the weekend the Pound to Canadian Dollar (GBP/CAD) exchange rate found support on the back of the latest raft of Canadian gross domestic product (GDP) data.
Investors were disappointed that the annualised fourth quarter GDP figure had failed to strengthen as far as forecast, clocking in at 1.7% rather than 2.0%.
This suggests that the Canadian economy is not performing quite as well as hoped, with the economy growing by just 0.1% on the month in December.
With oil prices still under pressure from rising US production and markets turning jittery over the prospect of a global trade war, instituted by the Trump administration’s push for metal tariffs, the outlook for the Canadian economy looks less than encouraging.
Concerns over the future of NAFTA also kept CAD exchange rates under a significant degree of pressure, with a collapse of the trade agreement potentially exposing the economy to even slower growth.
Pound Exchange Rates Shrug Off Latest Brexit Worries
Although a high degree of uncertainty persists over Brexit this failed to keep the GBP/CAD exchange rate on a softer footing at the start of the week.
Fresh warnings that the UK could struggle to secure the kind of wide-ranging trade deal that Theresa May is aiming for did not significantly sour the mood towards the Pound (GBP).
As markets have already priced a significant degree of Brexit-based volatility into GBP exchange rates the ultimate impact of May’s latest speech and comments from EU officials proved limited.
A surprisingly strong uptick in February’s UK services PMI also helped to limit the downside potential of the Pound, with the sector continuing to perform strongly in spite of the ongoing wage squeeze.
Further Canadian Dollar Exchange Rate Losses Forecast on Dovish BOC Meeting
While no change in monetary policy is expected from the latest Bank of Canada (BoC) meeting this could still weigh heavily on the GBP/CAD exchange rate.
If policymakers adopt a more hawkish position the appeal of the Canadian Dollar could pick up sharply, giving investors cause to hope interest rates will rise again in the coming months.
On the other hand, should the BOC express caution over the future of NAFTA and the domestic economy the mood towards the Canadian Dollar may sour once again.
Any disappointment from Friday’s labour market data might also put downside pressure on CAD exchange rates, further undermining confidence in the domestic outlook.
Continued signs of protectionism from the US administration could give investors fresh incentives to sell the Canadian Dollar.
Pound Exchange Rates Vulnerable to Weaker UK GDP Estimate
Some renewed weakness could be in store for the GBP/CAD exchange rate on the back of the NIESR gross domestic product estimate for the three months to February.
With forecasts pointing towards a slight loss of momentum, and with the headline figure expected to dip from 0.5% to 0.4%, demand for the Pound looks set to falter.
However, if January’s raft of production and trade data match forecasts for a solid improvement this could support demand for the Pound.
As long as the UK economy continues to demonstrate signs of resilience this should keep hopes of further Bank of England (BoE) monetary tightening alive, to the benefit of the GBP/CAD exchange rate.