Pound Canadian Dollar (GBP/CAD) Exchange Rate Slides Thanks to Chinese Trade Resurgence

May 7, 2020 - Written by Frank Davies

STORY LINK Pound Canadian Dollar (GBP/CAD) Exchange Rate Slides Thanks to Chinese Trade Resurgence

Surprise Chinese Trade Turnaround Drags on Pound Canadian Dollar (GBP/CAD) Exchange Rate

An unexpectedly recovery in China’s April trade data left the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate on the back foot as market risk appetite improved.

Demand for the Canadian Dollar generally picked up after the Chinese trade surplus delivered a surprise widening, driven by a 3.5% monthly uptick in export volumes.

This evidence of a recovery from the world’s second largest economy encouraged investors to pile back into higher-yielding assets once again, boosting CAD exchange rates.

While April’s Ivey PMI disappointed forecasts, softening from 26 to 22.8 on the month, this failed to weigh down the Canadian Dollar.

Although signs still point towards the Canadian economy struggling at the start of the second quarter the wider improvement in market sentiment still pushed the GBP/CAD exchange rate lower.

Reaction to the Bank of England’s (BoE) latest policy announcement also dragged on the Pound, meanwhile, thanks to its dovish economic forecasts.

With the UK economy forecast to see a -14% contraction in 2020 the mood towards the Pound naturally soured, even though the BoE also expects to see a rapid V-shaped recovery in 2021.

Deepening Consumer Confidence Decline to Extend GBP/CAD Exchange Rate Losses

Demand for the Pound could weaken further if May’s GfK consumer confidence index shows a deeper fall into negative territory.

As long as consumer confidence shows a fresh monthly decline worries over the outlook of the UK economy are likely to linger, to the detriment of GBP exchange rates.

With consumer spending likely to prove a key influence in any economic recovery a persistently negative level of sentiment raises the odds of growth remaining lacklustre for longer.

However, growing anticipation ahead of Boris Johnson’s Sunday announcement of the government’s lockdown exit plan may still lift the GBP/CAD exchange rate in the short term.

Hopes that the UK economy could start to return to normal in the weeks ahead, in spite of lingering fears of a potential second wave of Covid-19 infections, could offer the Pound a solid boost.

If Johnson fails to deliver sufficient promises to satisfy markets, though, the Pound could easily fall out of favour once again.

Jump in Unemployment Set to Knock CAD Exchange Rates off Uptrend

On the other hand, the Canadian Dollar may struggle to hold onto its positive footing for long thanks to the release of April’s Canadian labour market data.

Forecasts point towards a sharp spike in the unemployment rate from 7.8% to 18% as the impact of the Covid-19 shutdown makes itself felt.

Evidence that the labour market started the second quarter under even greater pressure could knock the Canadian Dollar, with investors wary of the potential for a deeper economic decline.

Unless April’s labour market data betters expectations the GBP/CAD exchange rate could find some traction ahead of the weekend.

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TAGS: Pound Canadian Dollar Forecasts