GBP/CAD exchange rate climbs, Canadian unemployment set to rise
The Pound Canadian Dollar (GBP/CAD) exchange rate continues to recover today following a slump earlier in the week on UK Spring Budget Day. Propelling the exchange rate higher may be expectations for a rise in Canadian unemployment – which would likely depress the Canadian Dollar (CAD).
At the time of writing, GBP/CAD is trading at C$1.7260, more than 0.2% higher than at this time yesterday.
Canadian Dollar (CAD) trades mixed ahead of employment report
The Canadian Dollar is softening against the Pound (GBP) and several other peers today but rises against other currencies. Modest tailwinds may be inspired by Canada’s latest building permit data, which jumped to a seven-month high of 13.5% in January.
Nevertheless, the ‘Loonie’ could see rocky trade ahead not just as a result of this afternoon’s employment report, but also in response to a tumble in oil prices.
At half-past one UTC, February’s unemployment release is forecast to show an increase in the jobless rate in Canada, to December’s 22-month high of 5.8%. Such an occurrence would likely dent CAD sentiment, suggesting that tight monetary policy continues to hamper economic growth.
Yet economists at ING bank downplay the release, arguing that:
‘The implications for the Canadian Dollar should not be material unless we see a big surprise in either direction. Both the Loonie and Bank of Canada rate expectations have followed very closely US data dynamics and we think that today’s US payrolls should have a bigger say in the short-term direction of USD/CAD.’
In the US, unemployment is expected to have remained at the same level in February as in January. If the release indeed shows no increase in joblessness, US Dollar (USD) tailwinds could buoy the ‘Loonie’.
On the other hand, a protracted tumble in crude oil prices may weigh upon the Canadian Dollar. A commodity currency, CAD is heavily influenced by the performance of its main export.
Pound (GBP) firms following mixed responses to UK budget announcement
The Pound is easing upward against the majority of its peers, recouping widespread losses accrued on Wednesday as the UK’s Spring Budget was announced. While tax cuts came as a relief to struggling households, campaigners lamented public spending cuts and the likely influence they will have on already-stretched services.
Lending support today, however, is optimistic GBP sentiment. Investors widely expect the US Federal Reserve bank to cut interest rates before the Bank of England (BoE), lending support to Sterling on assumptions of central bank hawkishness.
Feeding these expectations are a reluctance amid members of the BoE’s Monetary Policy Committee (MPC) to commit to a timeframe concerning interest rate cuts. Policymakers insist that cuts will not be appropriate until there are clear signs inflation will return sustainably to the 2% target.
Only known doves within the UK’s central bank are pushing back against the tighter-for-longer monetary policy outlook. Swati Dhingra, for example, cautioned recently:
‘Monetary policy needs to be forward-looking because moderation of the policy stance requires time to implement and to feed through to the real economy.’
She further warned that overtightening monetary policy frequently comes with hard landings and scarring of supply capacity.
GBP/CAD exchange rate forecast: Canadian Data to Dictate Movement?
The Pound Canadian Dollar exchange rate is likely to trade this afternoon according to Canada’s latest jobs release. If unemployment climbs as forecast, GBP/CAD may extend its gains as the ‘Loonie’ attracts losses.
On the other hand, if unemployment remains at its current level or defies expectations by falling, CAD could trend up, pressuring the Pound ‘Loonie’ exchange rate. Moreover, weakness in the Pound if traders’ thought turn once again to the impacts of Wednesday’s Spring Budget could cap Sterling gains.
This afternoon’s US data is also likely to influence the exchange rate. If the latest jobs report impresses, strength in the ‘Greenback’ may support the Canadian Dollar, pushing CAD/GBP higher. If oil prices continue to tumble, however, ‘Loonie’ gains may likewise be limited.