Pound Canadian Dollar (GBP/CAD) Exchange Rate Shifts Lower Thanks to Lacklustre New Car Sales

Underwhelming UK Car Sales Dent Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate

A smaller-than-expected rebound in UK new car sales left the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate stuck on the back foot this morning.

Although sales saw growth of 1.3% on the year in September, offsetting the -1.6% decline seen in the previous month, this failed to encourage any particular sense of market optimism.

As Mike Hawkes, chief executive of the Society for Motor Manufacturers and Traders (SMMT), noted:

‘September’s modest growth belies the ongoing downward trend we’ve seen over the past 30 months.’

With a significant degree of uncertainty still surrounding the matter of Brexit investors found little cause for confidence in the outlook of the UK economy, dragging Pound Sterling (GBP) down against its rivals.

Canadian Dollar Forecast to Push Higher on Narrowed Trade Deficit

Even so, support for the Canadian Dollar (CAD) proved limited as oil prices continued to trend below US$60 per barrel, limiting the vulnerability of the GBP/CAD exchange rate.

The mood towards the Canadian Dollar could improve this afternoon, however, as forecasts point towards a narrowing of the trade deficit in August.

Evidence of higher levels of export volumes may encourage a greater sense of optimism in the outlook of the Canadian economy, even in the face of the latest escalation in global trade tensions.

On the other hand, CAD exchange rates may shed further ground heading into the weekend if the trade balance shows signs of deterioration.

With the Ivey PM also expected to see a sharp decline on the month investors may lack incentive to favour the Canadian Dollar in the near term.

GBP/CAD Exchange Rate Under Pressure as Earlier Brexit Optimism Fades

Although markets showed some optimism after Boris Johnson submitted his Brexit proposal to EU officials this bullish mood proved to be relatively short-lived.

A lack of progress on the Irish border issue continues to cast doubt over the possibility of the two sides reaching an agreement ahead of the current deadline.

Unless the possibility of an extended deadline increases or officials demonstrate a greater willingness to compromise support for the Pound could easily diminish in the days ahead.

Without any substantial breakthrough on Brexit the prospect of further weeks of economic uncertainty looks set to keep the GBP/CAD exchange rate on the back foot.

Stronger Canadian Construction Data Set to Encourage Canadian Dollar Gains

Confidence in the underlying health of the Canadian economy could improve next week, however, if the latest housing starts and building permits figures prove positive.

Signs of resilience within the domestic construction sector would give investors and Bank of Canada (BOC) policymakers greater cause for optimism.

With the Federal Reserve looking increasingly likely to cut interest rates again before the end of the month markets are wary of the possibility of the BOC following suit.

However, as long as Canadian data paints a stronger picture of the economic outlook the risk of BOC dovishness is likely to diminish, offering the Canadian Dollar a fresh boost against its rivals.

Louisa Heath

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