Pound Sterling to Canadian Dollar (GBP/CAD) Exchange Rate Fails to Capitalise on Weak Canadian GDP

Underwhelming Growth Data Keeps Canadian Dollar (CAD) Under Pressure

UPDATE: September’s Canadian gross domestic product data proved weaker than forecast, leaving the Canadian Dollar (CAD) on a soft footing this afternoon.

A surprise contraction in growth on the month proved particularly discouraging, suggesting that the Canadian economy came under greater pressure at the end of the third quarter.

Even so, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate failed to gain much ground in the wake of the data, with investors still wary of Brexit-based uncertainty.

UK House Price Recovery Fails to Encourage Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Rally

An improvement in November’s Nationwide house price index was not enough to shore up Pound Sterling (GBP) this morning.

Although growth in UK house prices recovered from the five-year low seen in October, rising 1.9% on the year, worries remain over the ultimate outlook of the domestic housing market.

The uncertainty still surrounding Brexit as well as the prospect of higher interest rates look set to encourage buyers to continue holding off in the months ahead, keeping price growth in check.

After the sharp slump in the GfK UK consumer confidence index yesterday support for the Pound remained limited, with sentiment at risk of deteriorating further ahead of the March 2019 deadline.

This left the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate generally lacking in momentum, even in the face of an increased sense of market risk aversion.

Persistent Oil Price Weakness Keeps Canadian Dollar (CAD) Under Pressure

With Brent crude trapped below the psychologically important US$60 per barrel mark the appeal of the commodity-correlated Canadian Dollar (CAD) has remained limited.

Investors see little reason to buy into the Canadian Dollar while oil prices remain under pressure, with increasing US production weighing heavily on the global oil market.

The diminished value of one of the Canadian economy’s major exports has added to market worries over the country’s underlying economic health.

A mounting sense of general risk aversion also dented CAD exchange rates this morning as investors brace for the weekend’s G20 meeting and any potential developments in the US-China trade spat.

CAD Exchange Rates Vulnerable to Slowing Canadian Growth

Further weakness could be in store for the Canadian Dollar this afternoon if September’s gross domestic product data fails to impress.

As the headline GDP is forecast to slow from 2.5% to 2.3% on the year confidence in the domestic outlook looks set to diminish further, to the detriment of CAD exchange rates.

A softening in growth momentum would give the Bank of Canada (BOC) greater incentive to leave monetary policy on hold for the foreseeable future, denting hopes of another interest rate hike.

With monthly growth expected to clock in at a steady but disappointing 0.1% investors are unlikely to find any reason to favour the Canadian Dollar this afternoon.

Thus, unless the GDP data surprises to the upside, the GBP/CAD exchange rate could gain further ground heading into the weekend.

Resilient UK PMIs to Support Pound Sterling (GBP) Exchange Rates

While Brexit uncertainty could continue to drag on the Pound next week a fresh boost could come on the back of November’s UK PMIs.

After October’s underwhelming performance investors are looking to see greater signs of resilience within the manufacturing and service sectors.

As long as the PMIs remain firmly within growth territory this should limit the downside potential of the Pound, giving investors cause for confidence in the economic outlook.

However, if evidence of a weaker fourth quarter GDP continues to pile up the GBP/CAD exchange rate looks vulnerable to further losses.

With the UK’s departure from the EU likely to depress growth in 2019 signs of slower fourth quarter growth may see the Pound slump sharply across the board.

Hannah Wilson

Contact Hannah Wilson