GBP to CAD Exchange Rate Holds Above Worst Levels as Bank of Canada Weakens ?Loonie?

April 19, 2018 - Written by David Woodsmith

STORY LINK GBP to CAD Exchange Rate Holds Above Worst Levels as Bank of Canada Weakens ?Loonie?

Both the Pound and Canadian Dollar have become unappealing in recent sessions, causing fluctuations in the British Pound to Canadian Dollar (GBP/CAD) exchange rate. Still, overall the Pound outlook appeared to have worsened more due to disappointing UK inflation data weighing on Bank of England (BoE) interest rate hike bets.

A broadly stronger Canadian Dollar pushed GBP/CAD lower in recent weeks, but this week GBP/CAD was initially on track to see gains. The pair opened the week at the level of 1.7945 and advanced to a high of 1.8055 on Tuesday, before slipping back below the week’s opening levels again on Wednesday. At the time of writing, GBP/CAD trended closely below the week’s opening levels.

GBP Recovery Limited as UK Retail Sales Disappoint Investors

Investors sold the Pound on Wednesday following the publication of a disappointing UK Consumer Price Index (CPI) report.

While a weaker Canadian Dollar allowed it to briefly recover some of its losses, Thursday’s UK retail sales data from March kept additional pressure on the British currency.

UK retail sales were forecast to have contracted at -0.5% month-on-month but instead fell from 0.8% to a deeper contraction of -1.2%.

The year-on-year print was forecast to improve from 1.5% to 2%, but instead slowed to 1.1%.

Many analysts expected a disappointing report due to the surprisingly icy and snowy weather and storms in Britain throughout March, so the data did not have a significant impact on the Pound outlook.

Some analysts even suggested that the data contained reasons for investors to remain optimistic. According to Lisa Hooker, consumer markets leader at PwC:

‘But, it’s not all doom and gloom. This week, we’ve already seen evidence of wages growing in real terms as inflation has eased. Moreover, our most recent survey shows that consumer sentiment is recovering and is higher than it was both in December and this time last year. This is particularly true of younger people, with more under 45s saying they think they’ll be better off next year.’

As Sterling was not too hugely affected by the retail data, it was more easily able to hold away from its weekly lows against a weaker Canadian Dollar.

CAD Sold as Bank of Canada (BoC) Takes Dovish Tone in Policy Decision

Hopes that the Bank of Canada (BoC) would take a more hawkish tone in its April policy decision were dashed on Wednesday, as the bank played up concerns about Canadian trade.

Following weeks of Canadian Dollar strength amid rising hopes of a North American Free Trade Agreement (NAFTA) renegotiation deal, the Canadian Dollar was sold from its highs following the BoC meeting.

Some analysts and investors had expected the bank to be more optimistic too, due to NAFTA hopes and market hopes that US-China trade tensions would not escalate to a trade war.

However, while the bank indicated that more interest rate hikes were on the way it did not signal how soon the next one may be – indicating that Canadian rates may not rise as much in 2018 as initially expected.

Out of caution that negotiations could worsen again, the Bank of Canada played up concerns about how protectionist trade policies and clashes over trade could negatively impact Canada’s economy.

GBP/CAD Forecast: Bank of England and Canadian Inflation in Focus

The Pound to Canadian Dollar exchange rate is unlikely to see particularly strong performance before the end of the week as both currencies remain unappealing to investors.

GBP/CAD could end the week near its opening levels, unless upcoming Bank of England (BoE) comments or Canadian ecostats surprise investors.

Bank of England officials will be holding speeches in the coming days. If policymakers indicate that the latest UK inflation data had little impact on the bank’s monetary policy outlook, the Pound could recover some of its recent losses and GBP/CAD would climb.

Canadian Dollar demand could improve before the end of the week, if Canada’s March Consumer Price Index (CPI) results beat expectations on Friday.

Canadian inflation is forecast to have improved year-on-year, but slowed month-on-month.

Stronger Canadian inflation could boost market hopes that the Bank of Canada (BoC) may be pressured into hiking Canadian interest rates again sooner rather than later.

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TAGS: Pound Canadian Dollar Forecasts