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Pound Canadian Dollar (GBP/CAD) Exchange Rate Stumbles on Signs of BOC Optimism

November 15, 2019 - Written by Frank Davies

Less Dovish BOC Commentary Limits Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Support

A lack of dovishness from Bank of Canada (BOC) Governor Stephen Poloz helped to keep the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate under pressure.

As Poloz’s latest speech failed to drop any hints that the BOC is likely to ease monetary policy in the coming months the mood towards the Canadian Dollar saw a general improvement.

His more optimistic assessment of Canadian wage growth offered additional support to CAD exchange rates, encouraging bets that the BOC will remain on hold for longer.

Coupled with renewed anxiety over the UK political landscape, as election tensions continue to build, this left the GBP/CAD exchange rate on the back foot.

Recovering UK Industrial Activity Set to Lift GBP/CAD Exchange Rate

Confidence in the underlying health of the UK economy could pick up on the back of November’s CBI industrial trends orders index, however.

Forecasts point towards a moderate improvement from -37 to -28 on the month, suggesting that the manufacturing sector decline is starting to bottom out.

Even though orders are likely to remain in negative territory, thanks to the ongoing uncertainty surrounding the UK’s future relationship with the EU, this may offer the Pound a boost.

On the other hand, any fresh signs of deterioration in industrial activity could weigh heavily on the GBP/CAD exchange rate.

Canadian Dollar Vulnerable to Signs of Softening Manufacturing Sales

The mood towards the Canadian Dollar, meanwhile, may sour further in response to Tuesday’s manufacturing sales data.

As markets expect to see a weaker month of sales growth this could cast a fresh shadow over the outlook of the Canadian economy.

With global trade tensions looking set to linger, given the continued lack of progress towards a phase one US-China trade agreement, support for CAD exchange rates may prove limited.

Unless the Canadian manufacturing sector can demonstrate greater resilience in the face of weaker global growth the potential for Canadian Dollar gains looks muted.

Canadian Inflation Uptick Forecast to Boost CAD Exchange Rates

However, greater volatility looks set for CAD exchange rates with the release of the Canadian consumer price index data for October.

After September’s disappointing reading investors anticipate a resurgence in inflationary pressure on both the month and the year, offering the BOC greater cause for confidence.

If the headline inflation rate strengthens to 2.1% as forecast this would line up with the BOC’s current target rate, further diminishing the case for any monetary loosening.

Any fresh softening of inflation, though, could expose the Canadian Dollar to a fresh bout of selling pressure.
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