Squeeze on Oil Prices Helps Boost Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate
UPDATE: An unexpectedly sharp increase in US oil inventories has put the commodity-correlated Canadian Dollar (CAD) under fresh pressure this afternoon.
As US stockpiles rose by 8 million barrels on the week this prompted the price of oil to decline slightly, dragging CAD exchange rates lower in tandem.
The mood towards Pound Sterling (GBP), meanwhile, proved positive as investors greeted a solid UK services PMI, even though the headline index softened on the month.
Conservative Discord Over Brexit Limits Pound Sterling (GBP) Appeal
UPDATE: Demand for Pound Sterling (GBP) remained generally limited over the course of the day as the latest developments at the Conservative Party conference discouraged investors.
As former Foreign Secretary Boris Johnson launched a fresh attack on Theresa May’s Brexit proposals the Conservatives look no closer to agreement on the subject.
This kept the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate on a weaker footing.
NAFTA Replacement Boosts Canadian Dollar (CAD) Exchange Rates
News that the US and Canada had agreed a deal to replace NAFTA gave the Canadian Dollar (CAD) a boost this week.
This easing in trade tensions offered CAD exchange rates a solid rallying point on Monday, even though the agreement concedes greater US access to the Canadian dairy market.
While the US-Mexico-Canada Agreement (USMCA) must still gain approval from all three governments before it can come into force the initial deal was enough to boost the spirits of investors.
As market risk appetite recovered this helped to drive oil prices higher, offering CAD exchange rates a further source of support as Brent crude pushed towards the US$85 per barrel mark.
Canadian Dollar (CAD) to Benefit from Falling Unemployment
Confidence in the Canadian Dollar could strengthen further this week if Friday’s raft of labour market data impresses.
Forecasts point towards the unemployment rate falling from 6.0% to 5.9% in September, indicating a further tightening of the Canadian labour market.
This could offer the Bank of Canada (BOC) greater cause for optimism, increasing the chances of the central bank raising interest rates again in the months ahead.
However, if the employment data fails to negate August’s disappointing showing the mood towards the Canadian Dollar could sour.
Underwhelming Construction PMI Increases Pressure on GBP/CAD Exchange Rate
While Monday’s UK manufacturing PMI surprised to the upside this was balanced out by a weaker-than-forecast construction PMI.
As the construction index weakened from 52.9 to 52.1 in September this limited the appeal of Pound Sterling (GBP), undermining confidence in the domestic outlook.
Brexit-based uncertainty continued to weigh on sentiment within the construction sector last month, with optimism falling to its second lowest level since the start of 2013.
This weaker showing does not encourage particular optimism for Wednesday’s services PMI, which has the potential to drive significant GBP exchange rate volatility.
After the disappointing nature of the second quarter UK gross domestic product data this latest sign of slowing growth weighed heavily on the Pound.
Slowing UK Service Sector to Drag on Pound (GBP) Exchange Rates
If the UK services PMI weakens on the month in September this could see the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate extending its downtrend further.
As the service sector remains the primary growth engine of the UK economy any loss of momentum here is likely to have a major detrimental impact on the third quarter gross domestic product.
While the PMI is forecast to remain firmly within growth territory at 54 this may not be enough to offer GBP exchange rates any particular support.
Unless the sector shows solid signs of growth and more limited levels of Brexit jitters demand for the Pound looks set to remain muted in the near term.
However, if markets see the odds of a hard Brexit easing this may give the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate a leg up.