As the International Energy Agency cut its forecast for global oil demand this offered the Pound Canadian Dollar exchange rate a boost this morning.
Last Week: Oil Market Weakness and Risk Aversion Weigh on Canadian Dollar
Even in the wake of the OPEC+ decision to forego any imminent increase in oil production the market remained bearish as markets bet on the prospect of weaker demand to come.
This left the commodity-correlated Canadian Dollar on the back foot against many of the majors, especially as the general sense of market risk appetite diminished.
Support for the Pound, meanwhile, proved limited after November’s UK gross domestic product data confirmed a sharp contraction in growth.
With the UK economy on course to experience a double-dip recession the upside potential of the GBP/CAD exchange rate was limited ahead of the weekend.
Three Things to Watch out for This Week
1. Canada Inflation Rate
With forecasts pointing towards a slight dip in December’s monthly inflation rate the Canadian Dollar could face further selling pressure.
As long as inflation fails to show signs of picking back up the case for Bank of Canada (BOC) dovishness looks set to weigh on CAD exchange rates.
2. Bank of Canada Rate Decision
Even so, markets do not expect to see any change in monetary policy at the BOC’s announcement on Wednesday.
If policymakers express any increased anxiety over the outlook of the Canadian economy, though, this could still put some pressure on the Canadian Dollar.
3. UK Services PMI
The mood towards the Pound, on the other hand, could weaken once again on Friday if January’s UK services PMI fails to impress.
With the PMI expected to fall deeper into contraction territory at the start of 2021 confidence in the underlying health of the UK economy could continue to deteriorate, leaving the Pound vulnerable to selling pressure.
GBP/CAD Outlook
Softer Canadian inflation could offer the Pound Canadian Dollar exchange rate a boost this week, even as worries over the UK economic outlook linger.