- Market confidence improved in response to UK production figures – Pound rallied in spite of limited timeliness of data
- Oil prices slid after smaller-than-expected drop in US inventories – Oversupply worries continued to drag on Canadian Dollar
- UK consumer confidence slumped in wake of Brexit vote – Outlook for UK economy remained muted
- Lower Canadian unemployment failed to boost ‘Loonie’ – GBP CAD exchange rate extended gains ahead of weekend
Disappointing Canadian Employment Date Boosts GBP CAD Exchange Rate
In spite of the Canadian Unemployment Rate bettering expectations to fall from 6.9% to 6.8% the GBP CAD exchange rate remained on bullish form on Friday. While the headline figure suggested an improvement this appeared to be purely attributable to a lower Participation Rate, undermining any hopes for a bullish Canadian Dollar recovery. As a result the GBP CAD exchange rate extended its gains further towards the close of the European session, trending higher in the region of 1.6933.
(Previously updated at 10:04 on 08/07/2016)
Demand for the Pound has strengthened towards the end of the week, with the GBP CAD exchange rate receiving a boost from positive UK data and a renewed slide in oil prices.
Positive UK Production Data Prompted Pound (GBP) Bullishness
Even though markets remained jittery in the wake of the UK’s vote to leave the EU the Pound (GBP) staged a strong rally on Thursday. After several days of bearish decline investors were inclined to indulge in some consolidation trading, helping to lift the value of Sterling away from multi-year lows against rivals. The mood was further improved by the release of the May Industrial and Manufacturing Production figures, which strongly bettered expectations. Manufacturing output in particular outperformed forecasts, rising 1.7% on the year rather than 0.6% as anticipated.
While this growth is likely to have been at least partly reversed as a result of the Brexit vote that did not stop investors piling back into the Pound in response. This relief rally is unlikely to keep Sterling on a stronger footing for long, as researchers at TDS noted:
‘While the initial shock phase looks complete, Sterling faces substantial downward pressure as global investors allocate capital away from UK assets. Political uncertainty is likely to amplify these effects as the UK faces stability concerns on multiple fronts. The longer-term macro impacts of the EU withdrawal will only be felt with a delay. These are likely to maintain momentum in the GBP’s bearish long-term fundamentals.’
Demand for the Canadian Dollar (CAD), meanwhile, softened in response to a surprisingly weak Building Permits figure. As the measure dropped from 0.1% to -1.9% this signalled that downward pressures are mounting in the domestic housing market, with lower demand likely to lead to a slowing in the wider economy. Despite a stronger-than-expected Ivey Purchasing Managers Index this saw the Pound to Canadian Dollar (GBP CAD) exchange rate extend its strong gains.
Sharp Slump in Oil Price Benefitted GBP CAD Exchange Rate
Some of the confidence in the Pound diminished overnight in response to an additional post-referendum GFK Consumer Confidence survey. Naturally, domestic sentiment slumped sharply as a result of the surprise outcome of the vote, plunging from -1 to -9. This did not suggest an overly positive outlook for the UK economy, with weaker confidence likely to result in diminished spending and a potential exacerbation of slowdown pressures.
A smaller-than-expected decline in US crude oil inventories prompted the price of Brent crude to weaken further. While stockpiles did show a decrease on the week this nevertheless disappointed markets, as worries over the ongoing global supply glut continued to limit confidence. Consequently Brent crude slumped sharply, falling back from US$49.51 per barrel to a low of US$46.30. Although the commodity has since recovered some of its lost ground, this disappointment softened the appeal of the ‘Loonie’ and kept the GBP CAD exchange rate on a stronger footing.
GBP CAD Exchange Rate Forecast: ‘Loonie’ Predicted to Weaken on Higher Unemployment Rate
Further volatility is expected ahead of the weekend for the GBP CAD exchange rate with the latest raft of Canadian employment data. Investors anticipate a slight uptick in the June Unemployment Rate from 6.9% to 7.0%, a result which would encourage further Canadian Dollar selling. There are some concerns over the strength of the domestic employment market, as researchers at Scotiabank noted:
‘Labour market conditions remain soft, with most goods-producing sectors still cutting back their payrolls. While we anticipate a modest pickup in employment growth in 2017 as the pace of energy-sector layoffs wanes, competitive pressures in both domestic and export markets are expected to slow the recovery in wage and income gains.’
Anxiety is likely to remain a drag on the Pound for some time to come, however, as the political and economic fallout of Brexit continues to dominate the UK outlook. In the absence of further positive data, which would also be of limited impact thanks to its lack of freshness, the trend for Sterling is expected to remain generally biased to the downside.
Current GBP, CAD Exchange Rates
At the time of writing, the Pound to Canadian Dollar (GBP CAD) exchange rate was trending higher around 1.6829, while the Canadian Dollar to Pound (CAD GBP) pairing was slumped in the region of 0.5936.