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Pound Canadian Dollar Muted as Covid-19 Cases Rise, Retail Data Improves

November 19, 2021 - Written by John Cameron

GBP/CAD Lacks Direction as UK and Canadian Retail Sales Provide Optimism

The Pound Canadian Dollar exchange rate is trading in a narrow range on Friday after making gains through the latter part of the week.

Improved UK retail sales failed to bolster GB exchange rates, while Canadian retail figures supported the Canadian Dollar.

However, concerns over rising coronavirus infections in Europe and falling oil prices kept GBP/CAD in a narrow range, trading at CA$1.7010 towards the end of the European session.

Pound (GBP) Mixed amid Increased Coronavirus Risks

The Pound was mixed at the end of the week amid a souring market mood as fears mount over renewed lockdown restrictions across Europe.

As a fourth wave of coronavirus infections appears to be sweeping Europe, Austria announced a full lockdown, intensifying concerns over more restrictions in Europe and spreading to the UK that could impact economic activity.

Fawad Razaqzada, analyst at ThinkMarkets, commented on lockdown fears:

“There is now a risk for at least a short-term correction as investors wake up to the risks facing the Eurozone economy, after the major stock indices hit repeated all-time highs in recent weeks.”

The concerns appear to be weighing on GBP exchange rates, with Sterling struggling against many of its peers.

Earlier in Friday’s session, October’s UK retail sales data showed better-than-expected growth of 0.8%, the first positive reading after five months of contraction.

The Office for National Statistics commented on the data:

“Clothing stores reported an increase of 6.2% over the month with feedback from some retailers suggesting that early Christmas trading had boosted sales.

“This is supported by analysis within the Coronavirus and social impacts release, which reported that the most common items bought or pre-ordered earlier than usual for Christmas this year included toys and clothes, shoes or accessories. The latest rise means clothing stores sales are now only 0.5% below their pre-coronavirus pandemic level.”

Canadian Dollar (CAD) Strengthens on Upbeat Retail Figures

The oil-sensitive Canadian Dollar ticked higher on Friday as a risk-off mood caused by the possibility of more lockdowns in Europe dampened demand for CAD’s rivals.

CAD exchange rates made gains despite WTI crude prices falling to $76 a barrel.

Surging coronavirus infections threatening to trigger more restrictions, and plans for the US, China and other major economies to release oil reserves have driven down oil prices this week.

The Canadian Dollar received support from Canada’s September retail sales. Although sales contracted by -0.6% mainly driven by the chip shortage hitting the auto sector, the figure came in above forecast of -1.7%.

At the same data, estimates suggest that retail growth will increase by 1% in October, boosting CAD exchange rates.

Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets commented:

“It’s important to note that the weakness in autos isn’t due to weakness in demand, but rather a lack of supply due to semiconductor shortages. The picture looks much healthier than the headline suggests.

“Consumers appear ready, willing, and able to spend as we head into the holiday season”

Pound Canadian Dollar Forecast: Covid-19 and Oil Prices to Drive Movement

The GBP/CAD exchange rate will likely be driven by headlines over UK-EU talks on the Northern Ireland protocol and volatile oil prices going into the start of next week until UK PMI data released on Tuesday.

The possibility of the UK government activating Article 16 of the protocol continues to hang over the talks, although signs of optimism over progress in the negotiations could support Sterling.

With concerns over oil demand falling in Europe due to lockdown restrictions, a dip in WTI crude prices may dent the oil-sensitive ‘Loonie’.

Meanwhile, developments in the UK’s Covid-19 situation may drive additional movement, with worries mounting over the surge in infection across Europe.

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