Pound Canadian Dollar Exchange Rate Steady, ‘Loonie’ Traders Await Clues to Bank of Canada’s Rate Outlook

GBP/CAD Exchange Rate Rangebound, US-China Trade Uncertainty Haunts Canadian Markets

The Pound Canadian Dollar (GBP/CAD) exchange rate held steady this morning, with the pairing currently trading around CA$1.707 as ‘Loonie’ traders await further clues on the Bank of Canada’s (BoC) rate outlook.

Mazen Issa, a Senior Currency Strategist at TD Securities, commented:

‘We think over the next couple of weeks we’ll definitely be getting a better read on how [the Canadian fourth quarter] GDP shaped up. Currently our tracking for GDP is pretty abysmal … tracking at about a 0.5% increase.’

While the risk-sensitive Canadian Dollar (CAD) continues to benefit from positive risk sentiment following the singing of the US-China ‘phase one’ trade agreement, some of the existing tariffs in place will remain in effect until President Donald Trump is satisfied with ‘phase one’ before moving onto ‘phase two’ talks.

As a result, Canadian markets are remaining cautious as relations between the two superpowers are notoriously volatile.

EU Trade Chief Phil Hogan commented:

‘Let’s look at the detail of what that has actually achieved, we still have 20 per cent tariffs on both sides. This is not going to be good for competitiveness or jobs, which is a desired objective of President Trump. In the short term, it might work between now and November… [as a] politician, I understand the way it works’.

GBP/CAD Exchange Rate Steady, UK Retail Undershoots Forecasts in December

The Pound (GBP) failed to gain against the ‘Loonie’ today after the release of December’s UK retail sales figure undershot forecasts and fell by -0.6%.

Ryan Broomfield, a partner at the business services firm RSM, was downbeat in his analysis, commenting:

‘This brings to an end what has been a pretty torrid 2019 for many high street operators, described by the British Retail Consortium as the worst for 25 years. Shoppers will have noticed the impact of store vacancies in retail parks and town centres, notably in areas which have lost large department stores and with further closures expected in 2020.’

This has also boosted speculation regarding the Bank of England’s (BoE) possible rate cut later this month, following several comments from the central bank’s policymakers and rate-setters saying that they would back a vote on an imminent rate cut.

The BoE’s rate cut odds have since increased, with the CME BOE Watch tool predicting odds over 60%. As a result, Sterling traders are feeling increasingly jittery as the UK economy is expected to struggle early into 2020.

GBP/CAD Outlook: Sterling Could Sink Further on BoE Rate Cut Fears

Sterling traders will be looking ahead to Tuesday’s publication of the UK ILO unemployment rate figure for November. However, as this is expected to increase from 3.8% to 3.9%, we could see the GBP/CAD exchange rate sink on heightened concerns of a BoE rate cut later on this month.

Canadian Dollar investors will be looking further ahead to Wednesday’s interest rate decision from the Bank of Canada. The bank is expected to hold interest rates at 1.75%, but any dovish comments in the bank’s statement could cap some of the ‘Loonie’s gains.

US-China trade developments will once again remain in focus. Any indications that the ‘phase one’ deal could breakdown or present further obstacles to the implementation of ‘phase two’, however, would prove CAD-negative.

David Moore

Contact David Moore