Pound Sterling to Canadian Dollar (GBP/CAD) Exchange Rate Muted After Disappointing UK Borrowing Data

Underwhelming UK Borrowing Data Limits GBP/CAD Exchange Rate Upside

UPDATE: October’s UK public sector net borrowing data failed to shore up the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate, with monthly borrowing rising further than forecast.

However, the Canadian Dollar (CAD) struggled to capitalise on the weakness of its rival as Canadian wholesale trade sales showed a fresh contraction on the month in September.

With sales down -0.5% on the month confidence in the outlook of the Canadian economy diminished, weighing CAD exchange rates down this afternoon.

Canadian Dollar (CAD) Exchange Rates Under Pressure as Oil Prices Slump

UPDATE: The mood towards the Canadian Dollar (CAD) soured over the course of yesterday afternoon as the oil market came under increased pressure.

As WTI crude slumped -7% on the day’s opening levels, falling to around US$53 per barrel, this weighed heavily on the commodity-correlated CAD.

With global supply looking set to continue outstripping demand for the foreseeable future the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was encouraged.

BoE Comments Fail to Boost Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate

Comments made by Bank of England (BoE) Governor Mark Carney had a limited impact on Pound Sterling (GBP) exchange rates this morning.

As Carney indicated that interest rates could move either up or down in the wake of Brexit, depending on the details, this gave investors little incentive to favour the Pound over its rivals.

With Theresa May’s Brexit deal still needing to get Parliamentary approval a sense of political tension continued to hang over the Pound, even as the odds of a vote of no-confidence appeared to ease.

This limited the potential for the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate to recover ground, with markets still wary of the prospect of further UK political turmoil.

Oil Worries Limit Demand for Canadian Dollar (CAD) amid Risk-Off Trading

Demand for the Canadian Dollar (CAD) has remained muted as a result of rising global trade tensions and weakening oil prices.

As the trade spat between the US and China looks set to rumble on for some time yet to come the appeal of the commodity-correlated Canadian Dollar naturally weakened.

Although markets still expect to see an OPEC-led production cut early next year this has failed to stimulate much support for oil prices, meanwhile.

With the benchmark Brent crude trending below US$67 per barrel once again CAD exchange rates found limited traction at the start of the week.

GBP Exchange Rates May Find Support on Improved UK Public Sector Net Borrowing

Although Brexit developments look set to dominate the outlook of GBP exchange rates for the foreseeable future the Pound may find a rallying point on the back of the latest UK public sector net borrowing figures.

If the budget deficit narrows as forecast this could give investors an incentive to buy back into the weakened Pound, at least in the short term.

Evidence of more resilient government finances would encourage greater confidence in the outlook of the domestic economy.

On the other hand, a significant uptick in new government debt may leave the GBP/CAD exchange rate on the back foot.

As long as doubts continue to hang over Theresa May’s position as prime minister, though, the mood towards the Pound is likely to continue to lean towards bearishness.

Solid Canadian Inflation and Retail Sales to Support Canadian Dollar (CAD) Exchange Rates

CAD exchange rates could make solid gains ahead of the weekend if October’s Canadian consumer price index data proves positive.

A rebound in the monthly inflation rate should give the Canadian Dollar a boost, following the -0.4% contraction seen in September.

Investors could find encouragement if the headline CPI continues to trend in excess of the Bank of Canada’s (BOC) 2% target.

Higher levels of inflationary pressure may prompt BoC policymakers to consider raising interest rates further in the months ahead, to the benefit of the Canadian Dollar.

Stronger monthly retail sales could also put pressure on the GBP/CAD exchange rate, provided the figures show an improvement in September.

Any disappointments, however, may see the Canadian Dollar losing ground against Pound Sterling on Friday, especially if market risk appetite remains muted.

Hannah Wilson

Contact Hannah Wilson