GBP to CAD Exchange Rate Advances Despite Slower UK Manufacturing PMI

January 2, 2018 - Written by Ben Hughes

STORY LINK GBP to CAD Exchange Rate Advances Despite Slower UK Manufacturing PMI

Despite Britain’s latest manufacturing data from Markit coming in lower than expected, the British Pound to Canadian Dollar exchange rate tested gains on Tuesday and trended above the week’s opening levels. The Canadian Dollar was weighed by expectations that prices of oil, Canada’s most lucrative commodity, would soon weaken.

Due to rising oil prices towards the end of 2017, GBP/CAD slipped slightly last week from 1.6993 to 1.6977. The pair also touched on a one-month-low of 1.6878 last Friday. GBP/CAD tested highs of 1.70 on Tuesday but its gains were limited by Britain’s underwhelming domestic data.

GBP Gains Limited by Lower UK Manufacturing PMI

Tuesday saw the publication of Britain’s December manufacturing PMI from Britain and overall the report was enough to indicate that UK manufacturing was still relatively solid up until the end of 2017.

The data did fall short of forecasts though. While the figure was expected to slip from 58.2 to 58, it instead dropped to 56.3.

Despite the slower pace in manufacturing growth, analysts were generally pleased with the results and said it indicated the sector would continue to grow in early 2018.

Sterling continued to perform relatively well against the Canadian Dollar, for example. According to Jane Foley from Rabobank;

‘It’s a difficult one to react to because yes it’s a disappointment, but it’s still a stunningly good figure,

It’s difficult to sell the Pound on the back of that number.’

Some analysts, like Howard Archer from EY ITEM Club, did note that Brexit negotiations could still have a notable impact on manufacturing activity as it will on most of Britain’s economy however;

‘Manufacturers will be hoping that the UK and EU make rapid progress in 2018 on a transition arrangement after agreeing to move to phase two of Brexit negotiations and that this encourages businesses to be more positive in their investment decisions and purchases of capital goods.’

CAD Loses Ground on Expectations that Oil Prices will Fall

The Canadian Dollar briefly saw a surge in demand last week as prices of oil, Canada’s most lucrative commodity, continued to rise towards the end of 2017.

Due to a crack in the major Forties oil pipeline, oil became a more appealing buy for traders amid expectations that this would lead to a period of slowed oil production, despite the pipeline being fixed quickly.

On top of rising oil prices, the Canadian Dollar saw continued support from the impressive Canadian retail and inflation stats which were published before the Christmas break.

On Tuesday it emerged that 2018 had seen oil prices reach their strongest year opening since 2014, due partially to Forties oil pipeline issue as well as unrest in Iran impacting production. The two crude oil benchmarks opened 2018 above US$60 per barrel.

However, concerns that oil prices could decline again in the coming sessions weighed on Canadian Dollar demand on Tuesday.

Oil prices are expected to weaken now that the Forties oil pipeline has been repaired and is expected to return to normal production rates soon.

GBP/CAD Forecast: UK Services and Canadian Job Stats in Focus

Most of this week’s most notable UK and Canadian data is due to come in on Thursday and Friday and could inspire some direction in the Pound to Canadian Dollar exchange rate.

Markit’s December UK services and composite PMI data will be published on Thursday. As services make up a significant chunk of Britain’s growth, this data could be influential to the Pound outlook.

Friday will follow with Canada’s job market results from December. The key unemployment rate is currently forecast to worsen from 5.9% to 6%.

If Canada’s job market report beats expectations, it could boost speculation that the Bank of Canada (BOC) will prepare to hike Canadian interest rates again within the coming months.

If this data impresses it could also distract from oil price developments and make the Canadian Dollar more appealing again towards the end of the week.

While UK data could strengthen the Pound slightly if it impresses, anxiety about the upcoming year of Brexit negotiations could weigh on Sterling as Brexit takes focus again, particularly when UK Parliament resumes next week.

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TAGS: Pound Canadian Dollar Forecasts