Pound Canadian Dollar (GBP/CAD) Exchange Rate Firms as Canadian Data Disappoints

Pound Canadian Dollar (GBP/CAD) Exchange Rate Rallies as Canada’s Retail Data Misses Forecast

(Updated 17:30, 21/07/2023) The Pound regained its earlier tailwinds against the Canadian Dollar this afternoon, as weakness in the ‘Loonie’ buoyed the GBP/CAD exchange rate.

In contrast with UK sales data, which exceeded expectations this morning, Canadian retail sales were considered to have risen 0.2% for the month of May, according to Statistics Canada’s preliminary estimate. The news depressed CAD morale, as sales growth had been estimated at 0.5%.

While retail activity was considerably higher in motor vehicle and parts dealers, it contracted for general merchandise retailers, healthcare and personal retailers. Commenting on the data, Shelly Kaushik, an economist at Bank of Montreal, said in a report to investors:

‘The Canadian consumer looks to be losing some wind beneath its wings in the face of still-elevated inflation.’ She added that expectations for flat retail trade in June were ‘setting the stage for weaker momentum in the second half of the year.’

Original article continues below:

Pound Canadian Dollar (GBP/CAD) Exchange Rate Attempts Climb as UK Sales Increase

The Pound Canadian Dollar (GBP/CAD) exchange rate jumped briefly this morning, as UK retail sales increased by more than expected in June. The Pound (GBP) is struggling to hold onto gains, however, as sentiment remains subdued by disappointing inflation data earlier this week.

At the time of writing, GBP/CAD is trading at C$1.6942, having relinquished initial gains.

Pound (GBP) Buoyed by June Sales Growth

The Pound enjoyed an initial uptrend this morning as June’s retail sales increased by 0.7% rather than the 0.2% forecast. The third straight month of growth, retail was boosted by summer sales and good weather as consumers spent at department stores and furniture outlets.

According to the Office for National Statistics (ONS), there were increases across all the main sectors – including food, non-food and non-store retailing – except automotive fuel, for which sales volumes fell by 0.3%.

Analysts’ assessment of the data is largely upbeat. Martin Beck, chief economic advisor to the EY Item Club, commented: ‘Retailers’ better performance in the second quarter increases the likelihood that the economy managed to grow in the quarter, despite headwinds from May’s extra bank holiday and ongoing industrial action.’

Nevertheless, the data was insufficient to lend sustained support to the Pound as Sterling sentiment remains subdued by the prospect of slowing interest rate hikes from the Bank of England (BoE). Wednesday’s inflation data showed a greater-than-expected decrease in price pressures, which led to markets dialling back their expectations for monetary policy tightening.

Canadian Dollar (CAD) Firms as Oil Prices Climb

The Canadian Dollar (CAD) has resumed its uptrend against the majority of its peers today, as crude oil prices inch higher. The commodity-linked currency is supported by the increasing value of the black gold.

Ahead of this afternoon’s retail sales release, hawkish sentiment from the Bank of Canada (BoC) is also boosting morale. Although Canadian inflation eased to 2.8% in the year to June, rather than 3% as forecast, investors appear to be reassured by the central bank’s latest commentary following its July interest rate hike.

The BoC raised its main interest rate to 5% earlier this month, warning that it could take longer than thought to reduce inflation to 2%. Experts are divided over whether another hike in September is likely – Desjardins chief economist Jimmy Jean told CBC news:

‘There’s an element of patience, and I think that’s why as well you see [the bank] being as noncommittal as they were today… They’re trying their best to communicate something to Canadians that can provide them with some sense of clarity. But the problem is that they don’t have that clarity themselves.’

Last week, trading investments or ‘swaps’ implied there is a better than 75% chance of a hike at the bank’s next meeting on 6 September; nevertheless, there are several economists who remain unconvinced.

GBP/CAD Exchange Rate Forecast: Canadian Retail Data to Direct Movement?

The Pound Canadian Dollar exchange rate may be directed this afternoon by the release of Canada’s May retail data. Sales in the country are expected to have increased; but by less than half as much as in April.

If sales print as expected, they are likely to be interpreted as a sign of restrictive inflationary pressures: this may help to reinforce the argument for a hawkish Bank of Canada. If sales print above expectations, however, it could indicate that the effect of rising prices on consumer behaviour is smaller than estimated.

Elsewhere, risk sentiment may influence GBP/CAD: a bearish market mood could subdue both currencies. Meanwhile, a lack of further UK data could leave GBP exposed to losses.

Olivia Evershed

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