Pound to Canadian Dollar Exchange Rate Ticks Higher after UK Services Sector Growth

January 4, 2018 - Written by James Fuller

STORY LINK Pound to Canadian Dollar Exchange Rate Ticks Higher after UK Services Sector Growth

On 3rd January, the Pound to Canadian Dollar exchange rate made a marginal decline over the course of trading.

The GBP/CAD exchange rate opened trading in the area of 1.6997, but later fell to close at 1.6952.

Services Sector Growth Triggers Pound to Canadian Dollar Exchange Rate Rise

A better-than-expected printing for the UK services sector has boosted the Pound today, leading to minor gains against peers like the Canadian Dollar and, to a greater extent, the US Dollar.

The December services PMI showed growth from 53.8 points to 54.2, although overall this was described as ‘mixed fortunes’ by Duncan Brock.

Mr Brock, Director of Customer Relationships at the Chartered Institute of Procurement and Supply, said;

‘Subdued sales growth demonstrates that underlying risk remains in terms of the economic outlook, with business confidence and investment spending closely aligned to progress in the Brexit negotiations.

Service providers retain an upbeat view of overall business prospects for the next 12 months, but the direction of travel is expected to be slow and steady over the course of 2018’.

The services sector is the largest single contributor to UK economic growth, as it covers a wide range of areas such as tourism, financial services and retailing.

Canadian Dollar to Pound Exchange Rate Drops on Warning of 60,000 Job Losses

A worrying prediction from the Bank of Canada (BOC) has weakened the Canadian Dollar to Pound exchange rate (CAD/GBP).

While crude oil prices have been steadily rising since the start of the New Year, the Canadian Dollar has remained under-traded because of widespread concern about the impact of higher minimum wages.

The BOC, Canada’s policymaking central bank, has estimated that 60,000 jobs could be lost by 2019, as a direct consequence of nationwide minimum wage increases.

Presenting its estimates, BOC officials have estimated that Canadian inflation could rise by 0.1% on average, but that real GDP growth could fall by -0.1% by the start of 2019.

Not all of Canada’s regions have implemented higher minimum wages yet, but the message from the BOC is that employers could struggle to cope with these planned salary hikes.

Summing up its findings, the BOC issued a statement saying;

‘Although empirical evidence is mixed on the magnitude of minimum wage effects, most studies for Canada find that the reduction in employment is statistically significant, especially for younger workers’.

In the long-term, a higher-than-expected increase in inflation could boost the Canadian Dollar, as it would put more pressure on the Bank of Canada (BOC) to consider another interest rate hike.

GBP/CAD Exchange Rate Forecast: Pound Losses possible on Ballooning Trade Deficit

The Pound to Canadian Dollar exchange rate could decline next week, when UK trade balance figures for November are released on 10th January.

The national trade balance is forecast to show a deficit expansion from £-1.405bn to £-3.3bn, which would be a substantial step back after relatively low readings for September and October.

The only other UK news to watch out for next week will be construction, industrial and manufacturing production figures, which will also be released on 10th January.

Construction activity is the main focus; estimates are for a recovery from -0.2% to 1.9%, which might provide a ray of hope for GBP traders and trigger a Pound to Canadian Dollar advance.

Canadian Dollar traders will see action sooner than GBP watchers, as high-impact Canadian trade and jobs figures will be coming out on Friday afternoon.

Based on current forecasts, the Canadian Dollar might end up declining against the Pound if the data prints as expected.

The national trade deficit is predicted to reduce from CA$-1.47bn to CA$-1.2bn, but unemployment in December is conversely forecast to rise from 5.9% to 6%.

This may be interpreted as a sign that national wage hikes are already having a negative effect on employed persons and could cause a drop in the Canadian Dollar to Pound exchange rate.

Rounding off what may be a bad hand of Canadian data, the Ivey PMI, measuring overall economic activity, is projected to show a slowdown in December.

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TAGS: Pound Canadian Dollar Forecasts