Update: Underwhelming Canadian Inflation Data Shores up Pound Canadian Dollar (GBP/CAD) Exchange Rate
As the headline Canadian consumer price index saw a surprise dip from 2.3% to 2.2% this encouraged the Pound to Canadian Dollar (GBP/CAD) exchange rate to rally.
Investors were disappointed to find that inflationary pressure had eased on the year, however marginally.
This set the Canadian Dollar (CAD) on a fresh downtrend as the data does not look likely to provoke any change in policy outlook from the Bank of Canada (BOC).
Pound Canadian Dollar (GBP/CAD) Exchange Rate Slides Amid Brexit Uncertainty
Speculation over Brexit has weighed heavily on the Pound to Canadian Dollar (GBP/CAD) exchange rate this week, with conflicting messages emerging over the UK’s future relationship with the EU.
While reports had suggested that the UK government is willing to remain part of the customs union until at least 2021, in order to avoid a hard Irish border, this failed to shore up the Pound (GBP) for long.
GBP exchange rates came under renewed pressure when Prime Minister Theresa May once again ruled out the prospect of the UK staying in the customs union after Brexit.
With the cabinet still appearing divided on key Brexit issues investors saw little cause for confidence in the Pound, particularly in the absence of any fresh domestic data.
Bullish Oil Prices Weigh on GBP/CAD Exchange Rate
The Pound to Canadian Dollar (GBP/CAD) exchange rate came under some additional pressure as oil prices surged higher.
Brent crude broke back above US$80 per barrel on Thursday for the first time since 2014, spurred on by the prospect of reduced Iranian exports and continuing political turmoil in Venezuela.
With markets betting that Brent could climb as high as US$100 per barrel in the coming months the mood towards the commodity-correlated Canadian Dollar (CAD) improved.
However, CAD exchange rates struggled to significantly capitalise on this bullish market trend as investors braced for the latest Canadian consumer price index data.
Stronger UK Inflation Forecast to Boost GBP/CAD Exchange Rate
Further volatility looks set for the Pound to Canadian Dollar (GBP/CAD) exchange rate next week with the release of April’s UK consumer price index report.
If inflationary pressure picks up as forecast this could see GBP exchange rates rise sharply, even though higher prices do not bode well for domestic households.
An increase in inflation would give the Bank of England (BoE) incentive to return to a more hawkish policy outlook, potentially increasing the odds of a 2018 interest rate hike.
On the other hand, any dip in price pressures could weigh heavily on the GBP/CAD exchange rate as investors revise their bets on the odds of imminent BoE policy action.
Unless there are signs of greater clarity on the subject of Brexit this is also likely to limit the appeal of the Pound over the coming days.
Pound Canadian Dollar (GBP/CAD) Exchange Rate Vulnerable to Oil Rally Reversal
Forecasts point towards a moderate rebound in March’s Canadian wholesale sales, something which may dent the Pound to Canadian Dollar (GBP/CAD) exchange rate.
Signs of resilience within the Canadian economy could offer the Bank of Canada (BOC) some encouragement, giving the central bank incentive to shift away from its more neutral policy stance.
However, if the oil market rally falters this is likely to drag on CAD exchange rates.
While markets expect to see the price of Brent crude pushing higher for some time to come there is still a risk that investors are spooked into a bout of profit taking.
Unless US production shows fresh signs of slowing the upside potential of the Pound to Canadian Dollar (GBP/CAD) exchange rate could prove limited.