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Pound to Canadian Dollar Exchange Rate Under Pressure as Canadian Exports Beat Forecasts

September 3, 2020 - Written by Frank Davies

Strong Canadian Export Growth Drags on Pound Canadian Dollar Exchange Rate

A better-than-expected month of exports for the Canadian economy helped to keep the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate under pressure.

While forecasts had pointed towards an improvement in trade conditions the trade deficit narrowed further than forecast in July, offering encouragement to the Canadian Dollar.

With export volumes picking up markets were spurred to take a more optimistic view of the economic outlook, in spite of the lingering risk of further disruption stemming from the Covid-19 pandemic.

As it remains to be seen whether these signs of economic recovery can be sustained in the months ahead, though, this limited the downside pressure on the GBP/CAD exchange rate.

Softer Labour Market Data Forecast to Limit Canadian Dollar Demand

The mood towards the Canadian Dollar could sour sharply heading into the weekend, however, as investors brace for the release of August’s Canadian jobs data.

Expectations of a smaller monthly increase in employment may see the Canadian Dollar falling out of favour on Friday.

Even if the unemployment rate edges down from 10.9% to 10.1% as anticipated the GBP/CAD exchange rate could still benefit from worries over the strength of the labour market.

Any softening in average hourly wages for August may equally dent CAD exchange rates, given the extent of the challenges currently facing households and the wider economy.

Unless the labour market shows signs of picking back up as the initial impact of the Covid-19 outbreak fades the Canadian Dollar could see itself trending lower once again.

GBP/CAD Exchange Rate Looks for Boost on UK Construction PMI Strength

In the wake of a disappointing UK services PMI, with the finalised reading falling short of the initial estimate, the Pound may struggle to find traction against its rivals.

Even so, the GBP/CAD exchange rate could stage some gains on the back of August’s corresponding UK construction PMI.

While the construction sector only accounts for a limited fraction of the UK gross domestic product a positive reading here may still improve the appeal of the Pound.

Evidence of greater resilience within the UK economy would give investors greater cause for confidence in the outlook, even in the face of persistent Brexit concerns.

However, with talks between UK and EU officials showing signs of stalling once again the lingering threat of a December cliff-edge could dampen the potential for GBP/CAD exchange rate gains.

Even if the UK economy can bounce back from the impact of the Covid-19 crisis a hard Brexit scenario would risk reversing any progress, putting businesses under renewed strain in 2021.

As a result, anything short of positive progress towards an agreement between the two sides may push the Pound lower against its rivals in the days ahead.
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