The Pound to Canadian Dollar (GBP/CAD) edged higher today, with the pairing currently trading around CA$1.72. ‘Loonie’ investors are remaining cautious ahead of today’s US Federal Reserve meeting with hopes that the Fed could hold its interest rates and hold onto its easy policies.
Last Week: Pound Edges Higher as UK Services Sector Improves in July
The GBP/CAD exchange rate fluctuated from lows of CA$1.69 to highs of CA$1.72 over the course of last week, with ‘Loonie’ investors becoming increasingly concerned that sinking oil process could drag down Canada’s oil-reliant economy.
Tuesday also saw Canada’s retail sales for May rebound. However, following historic declines in March and April, many CAD investors chose to remain cautious.
Royce Mendes, an economist at CIBC World Markets, was mixed in his assessment, saying:
‘At the moment, sales are still being buoyed by the enormous government income-support programs and consumers satisfying pent-up demand, both of which could fade in the second half of the year.’
Meanwhile, Sterling suffered last week following a worse-than-expected UK GfK Consumer Confidence report for July, which held at -27. Consequently, GBP investors have since become more concerned for Britain’s economic recovery from the coronavirus pandemic.
The GBP/CAD edged higher on Friday after the UK’s Retail Sales figures for Jun beat forecasts and rose from 12.3% to 13.9%. With shoppers returning to the high streets as Covid-19 lockdown measures are eased, GBP investors have more reasons to be optimistic about the UK’s retail sector.
Friday also saw the release of the UK Services PMI for July, which emerged out of contraction territory from 47.1 to 56.6. As a result, GBP investors have become more hopeful that the UK could be on the road to recovery.
Chris Williamson, Chief Business Economist at IHS Markit, was more measured in his analysis, saying:
‘July’s PMI represents a step in the right direction, but there is a mountain still to climb before a sustainable recovery is in sight.’
Three Things to Watch out for This Week
- UK Brexit Developments
We could see Sterling head higher this week if there are any further signs that UK-EU trade negotiations could secure a post-Brexit trade deal. This week has already seen the European Union’s Chief Brexit negotiator, Michel Barnier, say that a trade deal was possible. Any further signs of a consensus would prove GBP-positive.
- Oil Prices / Risk Sentiment
The Canadian Dollar (CAD) will remain sensitive to oil prices and risk sentiment this week. If oil prices fall on growing fears for the global economy, or rising Covid-19 cases in China or the US, then we could see the ‘Loonie’ suffer.
- Canada’s GDP
CAD investors will also be looking ahead to Friday’s publication of the latest Canadian Gross Domestic Product figure for May. If this confirms consensus and rises by 3.5%, then we could see the Canadian Dollar benefit from growing hopes for the economy.
The Pound to Canadian Dollar (GBP/CAD) exchange rate could continue to head higher this week if concerns over the global economy grow. As a result, we could see the ‘Loonie’ suffer as oil prices dip and Canada’s export-reliant economy struggles.