Pound to Canadian Dollar Exchange Rate Forecast: GBP/CAD to Hold Gains if UK Data Impresses

Update: Pound to Canadian Dollar Exchange Rate Edges Higher Despite Quiet Economic Calendar

Despite a lack of surprising economic news, as well as Brexit uncertainties weighing on Sterling (GBP), the Pound to Canadian Dollar (GBP/CAD) exchange rate continued its modest climb on Tuesday afternoon.

At the time of writing, GBP/CAD was comfortably trading above the interbank level of 1.79. The pair trended near its best levels since last week.

Tuesday’s UK business optimism and industrial trends results from CBI were disappointing, but were generally too low-influence to put considerably pressure on the Pound.

As a result, GBP/CAD could continue to climb without issue until the Bank of Canada (BoC) Governor’s Wednesday speech.

Any surprising developments regarding trade or NAFTA negotiations may also cause a shift in Canadian Dollar (CAD) performance.

Pound to Canadian Dollar (GBP/CAD) Exchange Rate Edges Higher on Perceived Caution from Bank of Canada (BoC)

Following weeks of rising strength from the Canadian Dollar (CAD) on trade news and decent data, the Pound to Canadian Dollar (GBP/CAD) exchange rate has edged higher so far this week.

Due to broad weakness in Sterling (GBP), GBP/CAD tumbled from the interbank level of 1.79 to 1.78 last week. At the time of writing, GBP/CAD was edging above 1.79 again.

The Pound’s recovery against the Canadian Dollar could be even stronger if it has the support of strong UK data. Pound investors are anticipating Friday’s UK GDP projections.

GBP/CAD gains have been primarily due to perceived cautiousness from Bank of Canada (BoC) Governor Stephen Poloz in a speech he held on Monday. His tone caused investors to sell the Canadian Dollar from its recent highs.

Poloz said in his speech that while he expected Canadian inflation to rise above the bank’s targets in 2018 it would only be temporary. This caused BoC interest rate hike bets to fall.

Pound (GBP) Exchange Rate Strength Limited on Brexit Uncertainties

Brexit news has returned to the headlines this week. Following last week’s fall in Bank of England (BoE) interest rate hike bets and disappointing data, Brexit uncertainties are now putting additional pressure on Pound (GBP) trade.

Monday saw a non-binding Brexit-related vote held within the UK House of Lords, with the government’s position on membership of the EU customs union being rejected.

The defeat was largely seen as being due to divisions within Prime Minister Theresa May’s Conservative Party, and increased concerns that her leadership may be unstable or under threat.

According to a note from MUFG analysts:

‘There has been a clear pick-up in news reports over the difficulty the government faces in following through on their plans to leave the EU customs union,’

The day’s other UK data was mixed, with public sector net borrowing impressing but the CBI’s latest industrial trends results disappointing, meaning there was little overall impact on Pound trade.

Canadian Dollar (CAD) Exchange Rate Rally Fades as Poloz Takes Cautious Tone

The Canadian Dollar’s (CAD) recent winning streak may have come to an end, with the currency unable to hold its ground despite Sterling (GBP) weakness.

Strength from last week’s decent Canadian inflation and retail data, as well as hopes that the North American Free Trade Agreement (NAFTA) could be successfully renegotiated, had previously bolstered Canadian Dollar demand.

However, Monday saw Bank of Canada (BoC) Governor Stephen Poloz give testimony to the House of Commons Finance Committee, in which he expressed confidence in the bank’s current cautious outlook. In the testimony, he said:

‘Given what our outlook is, we’ve got monetary conditions roughly where they should be, and in that context, the fact that inflation is rising above 2 (percent) for now is due to temporary factors and we can see through them.’

The speech wasn’t hugely surprising or concerning for CAD investors however. Markets still expect the BoC will hike Canada’s interest rates once or twice in 2018.

Pound to Canadian Dollar (GBP/CAD) Forecast: Central Bank Speculation Remains in Focus

While Brexit uncertainty has returned to the headlines this week, the Bank of England’s (BoE) May policy decision is now mere weeks away and is likely to remain a focus for Pound (GBP) investors.

GBP/CAD movement could be limited until towards the end of the week, when key UK Gross Domestic Product (GDP) projections will be published.

UK growth is forecast to have slowed slightly from 0.4% to 0.3% quarter-on-quarter and remain at 1.4% year-on-year.

Analysts predict that if UK growth impresses or beats expectations, Bank of England interest rate hike bets could rise again. This would likely help GBP/CAD to secure its first weekly gains since mid-March.

As for the Canadian Dollar, Bank of Canada (BoC) Governor Stephen Poloz will be holding another speech on Wednesday which could influence the currency if he makes any surprising statements regarding monetary policy.

Of course, any major developments regarding NAFTA could also influence the Pound to Canadian Dollar (GBP/CAD) exchange rate in the coming days.

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