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GBP/CAD Exchange Rate Tight after UK Retail Sales Slump

January 19, 2018 - Written by David Woodsmith

On Thursday’s trading session, the Pound saw a small advance against the Canadian Dollar.

The GBP/CAD pairing opened trading in the region of 1.7205, later rising to 1.7243 by the evening.

With little direct economic news to refer to, GBP traders were primarily focused on recent speeches from Bank of England (BoE) policymakers Michael Saunders and Silvana Tenreyro.

Both were relatively cautious with their outlooks on future BoE monetary policy, with no dates being pencilled in for the next possible interest rate hikes.

Canadian Dollar traders were preoccupied with worrying forecasts about the consequences of the US pulling out of the North American Free Trade Agreement (NAFTA).

Renegotiation discussions have been ongoing since Donald Trump took office, but the risk of a mutually destructive US withdrawal is still a possibility, according to some economists.

Disappointing UK Sales Stats Leave GBP/CAD Exchange Rate Tight

Today’s headline UK news has concerned retail sales in December, which have slowed for the year-on-year readings and fallen into negative ranges during the month.

This negative news has left the Pound trading tightly against the Canadian Dollar, while in other pairings GBP has made moderate losses.

The sales data was largely a letdown for traders, as year-on-year growth had been forecast while the monthly drops were worse than expected.

ONS Senior Statistician Rhian Murphy charted a pattern of continually slowing growth in Q4 of 2017, stating;

‘Retail sales continued to grow in the last three months of the year partly due to Black Friday deals boosting spending.

Consumers continue to move Christmas purchases earlier with higher spending in November and lower spending in December than seen in previous years.

However, the longer-term picture is one of slowing growth, with increased prices squeezing people’s spending.

Over the year the proportion of internet spending is continuing to rise, with almost one in every five pounds spent online by the end of 2017’.

Summing up the concerning nature of the retail sales figures, Hargreaves Lansdown Senior Economist Ben Brettell said;

‘We’ve been waiting for the pay squeeze to filter through to the high street, but so far retail sales have held up better than many expected.

Today’s retail sales data from the ONS disappointed, however, with consumers cutting back on Christmas spending after November’s Black Friday splurge.

This continues the trend of bringing Christmas spending forward to take advantage of early discounts.

The figures undershot expectations by some margin, falling 1.5% on the month and rising just 1.4% year-on-year.

Economists had forecast the latter number at 3.0%. This means retail sales made next to no contribution to UK economic growth in the final three months of 2017.

The big question now is whether this is the start of a worrying trend for the economy, or whether falling inflation and rising wages will come to the rescue’.

CAD/GBP Exchange Rate Close as Crude Oil Prices Plunge

On a quieter day for Canadian Dollar traders, the CAD has remained close to the Pound due to a lack of support in commodity prices.

Following a pattern seen since mid-January, crude oil costs have continued to fall today, trending around the $63.42 per barrel level.

This dip in crude costs is attributed to rising levels of US oil extraction, pushing supplies up and prices down. Explaining recent changes in the global marketplace, the International Energy Agency (IEA) said;

‘Explosive growth in the US and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico’.

Is High GBP/CAD Volatility ahead on UK Earnings Stats?

The Pound could turn turbulent on 24th January, when high-impact average earnings stats come out.

If the November readings show a faster pace of wage growth then the Pound could rally, as this would suggest that the current wage squeeze is getting more manageable.

The next major Canadian data will be retail sales stats out on 25th January, which are forecast to show slowing activity during November.

In a similar situation to the UK, declining Canadian sales stats could lead to a CAD/GBP exchange rate decline.
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