Pound Canadian Dollar Exchange Rate Advances on Risk-Off Trading

January 13, 2017 - Written by Ben Hughes

STORY LINK Pound Canadian Dollar Exchange Rate Advances on Risk-Off Trading

Risk appetite generally declined ahead of the weekend thanks to an unexpectedly sharp contraction in Chinese exports, which prompted the Pound Canadian Dollar (GBP CAD) exchange rate to trend higher.

Less Dovish BoE Comments Boosted Pound Sterling

Confidence in the Pound (GBP) picked up in the wake of comments from Bank of England (BoE) policymaker Michael Saunders, who appeared to be relatively optimistic regarding the UK’s economic outlook.

Saunders noted that he expected unemployment to remain near its current 11-year lows given the resilience displayed by the economy in recent months, although this was tempered by a caution that wage growth is likely to stay slow.

Investors were encouraged to pile back into Sterling even so, with Brexit-based jitters largely overshadowed by developments across the Atlantic.

As this followed on from a strong slate of Christmas trading reports from retailers the impression of the domestic economy remained bullish, even though the prospect of a hard Brexit still served to limit the upside potential of the GBP CAD exchange rate.

Weak Chinese Data Weighed on Commodity-Correlated Canadian Dollar

While oil prices have been supported by reports that members of OPEC are living up to their agreement to slash production the commodity has failed to return to bullish territory.

The appeal of crude has been limited by indications that US output is rising to plug the gap left by OPEC, with an increase in oil stockpiles and the rig count pointing towards the global oversupply glut persisting for some time to come.

Although the US Dollar (USD) remained weak ahead of the weekend this was not enough to bolster the Canadian Dollar, in large part thanks to the concerns surrounding China’s economy.

A -6.1% slump in exports on the year in December gave rise to fresh worries over the health of the world’s second largest economy, denting demand for higher-yielding currencies and offering the GBP CAD exchange rate a further rallying point.

GBP CAD Exchange Rate Volatility Forecast with Brexit Speech

Sterling may struggle to hold onto its gains next week, however, as Theresa May will be delivering a speech on the subject of Brexit.

If her rhetoric leans towards a harder line of negotiations then the GBP CAD exchange rate could slide sharply, with the prospective loss of unimpeded access to the single market likely to weigh heavily on the minds of investors.

Also in focus will be the latest UK Consumer Price Index report, which could show a further increase in inflationary pressure as analysts at RBC Capital Markets noted:

‘Despite average petrol prices actually falling modestly in December versus the previous month, they are up around 10% y/y, which is one of the factors expected to contribute to another increase in CPI and RPI inflation for December.’

The Canadian Dollar could find support with the Bank of Canada’s (BOC) first policy meeting of 2017, meanwhile, with policymakers expected to maintain a natural bias on monetary policy.

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TAGS: Currency Predictions Pound Canadian Dollar Forecasts