GBP to CAD Exchange Rate Firms after UK Inflation Meets Expectations

April 11, 2017 - Written by John Cameron

STORY LINK GBP to CAD Exchange Rate Firms after UK Inflation Meets Expectations

The British Pound to Canadian Dollar exchange rate dropped on Wednesday afternoon and trended closer to the week’s opening levels again despite low demand for risk-correlated currencies.

The Bank of Canada (BOC) held its April monetary policy meeting on Wednesday afternoon and some analysts read its acknowledgement of Canada’s economic traction to mean that the bank could even be considering higher interest rates in the foreseeable future.

[Previously updated 11/04/2017]

As the latest UK wage data pointed towards real pay beginning to fall there was little particular cause for confidence in the Pound.

Even so, with markets still in a relatively risk averse mood the GBP CAD exchange rate maintained a narrow trend.

[Previously updated 11/04/2017]

The Pound to Canadian Dollar fell on Monday as the latest oil price news prompted investors to buy up the commodity as well as the oil-correlated Canadian Dollar. However, the Pound firmed on Tuesday due to solid inflation data.

GBP/CAD opened this week at the level of 1.6562. After briefly climbing to a high of 1.6630 on Monday morning, the pair fell to a three-week-low of 1.6522 on Tuesday, before edging back towards the week’s opening levels again.

GBP Sturdy but Flat as UK Inflation Contains Little Surprises

This week’s highly anticipated UK Consumer Price Index (CPI) results were not impressive enough to cause any kind of Pound rally, but they did help the British currency to hold its ground against a strong Canadian Dollar this week.

Britain’s month-on-month inflation stats impressed, only falling from 0.7% to 0.4% despite being projected to drop to 0.3%. The year-on-year inflation figure remained at 2.3% as analysts forecast.

As yearly inflation has now been over 2% for two months, analysts are growing concerned about how consumer spending will be affected by surging prices. Some analysts expect this could pressure the Bank of England (BoE) into tightening UK monetary policy in the future.

What’s more, traders expect April’s report to print a surge in inflation when it’s published next month, due to Easter taking place in April this year.

CAD Benefits from Rising Oil Prices

The main reason for the Canadian Dollar’s strength so far this week has been an unexpected improvement in prices of oil, Canada’s most lucrative commodity.

Monday saw oil prices edge towards US$56 per barrel after the commodity has struggled to rise above $50 per barrel in recent months due to strong US oil inventories.

Investors rushed into oil as Libya’s largest oilfield, Sharara, was shut down over the weekend as a group blocked a pipeline. On top of geopolitical uncertainty between the US and Syria in the last week, concerns are growing about oil production and supply chains in the Middle East.

With oil production looking to drop further, investors bought into oil expecting that demand may outstrip supply if the situation worsens further.

Canada’s latest domestic data was solid too. Canadian housing starts for March beat expectations of 216k by coming in at 253.7k.

GBP/CAD Forecast: Bank of Canada (BOC) Decision Ahead

Wednesday will see the publication of a slew of UK employment stats. Britain’s jobless claims data from March will be published, as well as unemployment and employment stats results for the three months into February.
If they beat expectations and indicate that Britain’s job market is strong, the Pound is likely to recover slightly against the Canadian Dollar.

However, Wednesday will also see the Bank of Canada (BOC) hold its key April monetary policy decision. While no change in policy is expected by analysts, any notable shift in tone will have immediate effects on the Canadian Dollar.

With Canada’s US neighbours enjoying higher interest rates this year, pressure is mounting among critics for the BOC to act. If the BOC hints at any possible move away from accommodative policy in the foreseeable future, CAD could soar.

It’s more likely that the bank will simply repeat its usual cautious tone however, which will leave the Pound as the main influence of GBP/CAD movement in the coming days.

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TAGS: Canadian Dollar Forecasts