Volatility Forecast for the Pound Canadian Dollar (GBP/CAD) Exchange Rate, Employment Readings on the Horizon

Update: Could the Pound Canadian Dollar (GBP/CAD) Exchange Rate find Support on Tomorrow’s Ecostats?

The Pound Canadian Dollar (GBP/CAD) exchange rate could see even more volatility tomorrow depending on the performance of a wide range of notable domestic data releases.

For Britain, markets will be looking at the UK’s trade balance reading, as well as the industrial production, manufacturing production and construction output figures for January. Beyond this, the NIESR gross domestic product estimate for February could also prove pertinent, with a forecast drop expected from 0.5%, to 0.4%.

Across the pond the market focus will be on Canada’s employment figures, with a forecast of 21k additional jobs and an unemployment rate of 5.9% - consistent with the previous reading.

Ultimately, Brexit will likely continue to take centre stage, however, with President Trump’s signing of the presidential proclamation for the tariffs also liable to spook the markets.

Tensions Escalate on Negative Brexit Impact Assessment - Pound Canadian Dollar (GBP/CAD) Exchange Rate Slips

The Pound Canadian Dollar (GBP/CAD) exchange rate stumbled on Thursday, continuing to flounder under the thumb of Brexit-related soundbites and failing to capitalise on NAFTA worries for the ‘Loonie’.

Markets are currently digesting the release of the Brexit Committee’s confidential ‘Impact Assessment’, a gloomy document that suggests that diverging from EU rules could damage the UK economy, and that a Brexit ‘dividend’ for the government is highly unlikely.

The analysis looked at how Brexit could affect the British economy under three different scenarios, concluding that ‘the most important driver of the GDP estimates is the change in NTBs [non-tariff barriers] in each scenario.’

However these predictions are, of course, predictions, and the government itself has announced that it does not accept the analysis for one very important reason; it does not take into account the Brexit trade deal that Downing Street hopes to achieve, nor does it factor in the possibility of trade deals with other nations.

Nonetheless, the markets remained unconvinced and anxious, particularly with Donald Tusk, President of the European Council, rejecting UK PM Theresa May’s plans for a bespoke trade deal yesterday.

Ultimately Sterling’s upward potential seems to be very much dependent on progress and clarity materialising on the Brexit front, even if talk of a rate hike in May temporarily gives it a boost.

Trump uses Tariffs as Leverage on NAFTA – Canadian Dollar (CAD) Exchange Rates Become Encumbered

The Canadian Dollar hasn’t had much of a better day, limping ahead of Sterling but coming under great pressure in response to US President Donald Trump’s talk of tariffs and the threat of global retaliation.

The President has since stated that Mexico and Canada could be exempt from a 25% import tariff on steel and a 10% tariff on aluminium for 30 days, though this would be entirely dependent on sufficient progress being made in NAFTA talks.

In this sense Canada now faces the predicament of offering the US a ‘fairer’ stake in the NAFTA renewal, or suffer the consequences of said tariffs.

Beyond this, President Trump is now expected to sign a presidential proclamation on Friday that would begin the process of enacting these measures, though it would take a few months before they could come into effect.

This leaves the ‘Loonie’ on an uncertain footing, with markets continually sensitive in regards to NAFTA because of its potentially huge implications for the Canadian economy.

In other news, Canada’s housing starts unexpectedly rose in February, with multiple unit buildings in various urban areas surging according to data from the Canada Mortgage and Housing Corporation.

This news had minimal effect, however, predominantly playing second-fiddle to the tougher trade talk.

Bank of England Rate Hike in May - Could the Pound Canadian Dollar (GBP/CAD) Exchange Rate Find a more Stable Footing?

Sterling might be struggling at the moment, but anticipation has steadily built for a rate hike from the Bank of England (BoE) as soon as May this year, a move that could push the Pound Canadian Dollar (GBP/CAD) exchange rate back into Sterling’s favour.

This is largely due to an ongoing barrage of hawkish messages from various members of the Monetary Policy Committee (MPC), with Governor Mark Carney, Deputy Governor Ben Broadbent and MPC members Michael Saunders, Ian McCafferty and Gertjan Vlieghe all considered as ‘hawkish’, leaving only two members in the dovish category and two regarded as centrist.

It should be stressed, however, that the performance of data between now and then could be massive deciding factors, with a notable slowdown in CPI inflation liable to curb forecasts.

This outlook was reflected by Alan Clarke, Head of European Fixed Income Strategy at Soctiabank, who stated:

‘…we fully expect that rate call to be challenged in the coming months if CPI inflation does slow sharply.’

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron