July 10, 2017 - Written by Tim Boyer
STORY LINK GBP to CAD Exchange Rate Strength Limited as Traders Await Bank of Canada (BOC) News
Poor British ecostats over the last week have failed to support the British Pound to Canadian Dollar exchange rate. A strong increase in Bank of Canada (BOC) interest rate hike bets helped the ‘Loonie’ to capitalise on Sterling weakness.
Last week saw GBP/CAD tumble from the opening level of 1.6888 to the closing level of 1.6595. Since markets opened this week, the pair has recovered to around 1.6650 due to poor commodity news weighing on the Canadian Dollar.
GBP Limp on Economic and Political Uncertainties
Last week’s slew of UK ecostats undermined market hopes that Britain’s economy would be resilient enough in the second half of 2017 to support tighter monetary policy from the Bank of England (BoE)
BoE Governor Mark Carney and chief economist Andy Haldane indicated in recent weeks that if Britain’s economic situation remains strong, it may be necessary to withdraw the bank’s aggressive quantitative easing (QE) program.
However, as Britain’s trade deficit widened in May while industrial and manufacturing production contracted, analysts have warned that British business confidence and investment is sliding.
Businesses appear to be more hesitant to make new investments due to the recent surge in political uncertainty as well as the ongoing Brexit process.
This week, EU leaders have once again criticised UK Prime Minister Theresa May’s proposal that EU citizens living in the UK could build up a ‘settled status’. EU leaders have argued there is too much uncertainty in the plan and believe EU citizens need the same rights they currently enjoy.
Speculation has also ramped up over the weekend that Conservative back-benchers could mount a leadership challenge against the PM towards the end of the year following her mishaps in this year’s general election.
This week, May is expected to hold a major speech in which she will indicate she will look to cross-party help with the Brexit process.
While this could lead to a softer Brexit, which would be Pound-positive, the persistent political uncertainty in Britain has made the Pound unappealing to traders.
CAD Struggles to Hold as Oil Prices Drop Again
The Canadian Dollar has seen a surge in demand since June, as bets of a July interest rate hike from the Bank of Canada (BOC) have risen.
BOC Governor Stephen Poloz has recently ramped up forward guidance, stating that the interest rate cuts introduced in 2015 had done their work for Canada’s economy.
He indicated the BOC would need to act as soon as possible to make sure Canadian interest rates can keep up with mid to long-term inflation trends.
However, the Canadian Dollar has seen volatility this week so far. Some analysts suggest the BOC should hold off on an interest rate hike until later in the year.
On top of this, traders are increasingly concerned about the global oil market. As oil is Canada’s most lucrative commodity, this has put pressure on the ‘Loonie’ Dollar.
Rising oil output in the US as well as solid supply from other oil producing nations have left the commodity in oversupply. With oil prices slumping again and markets doubting the effectiveness of OPEC’s oil output cap, the commodity has fallen in price and the Canadian Dollar has weakened.
OPEC recently signalled it may need to widen its output cap plans to include more nations, such as Nigeria and Libya, in order to tackle the persistent oversupply issue.
GBP/CAD Forecast: Bank of Canada (BOC) Meets on Wednesday
Save for potential political developments or changes in oil price, the Pound to Canadian Dollar exchange rate is unlikely to see any major shift in movement until Wednesday’s key session.
Wednesday will be the biggest day this week for both Pound and Canadian Dollar traders.
Britain’s May wage growth results will be published. Wage growth has been slowing in recent months, which combined with rising inflation has left British consumers with less disposable income.
If wage growth continues to fall short of expectations, concerns about slowing consumer activity hurting Britain’s consumer-facing economy will worsen.
On the other hand, stronger than expected wages would bolster hopes of UK economic resilience, leading to Bank of England (BoE) tightening bets and a stronger Pound.
Of course, Wednesday will also see the Bank of Canada (BOC)
hold its July policy meeting, in which the bank may or may not hike Canada’s interest rates up from their record lows.
While bets of a rate hike this week have recently surged, many analysts still forecast that it’s too soon.
As a result, the Canadian Dollar could see huge movement this week depending on whether the BOC leaves interest rates frozen or hikes them.
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TAGS: Pound Canadian Dollar Forecasts