- Canadian Dollar rises as Brent crude breaks back above $40 per barrel
- Fed meeting minutes weigh GBP/CAD exchange rate down to eleven-month low
- UK industrial production contracts to dent GBP confidence
- CAD forecast to strengthen further on higher Canadian employment
Oil Rallies to Bolster Canadian Dollar (CAD) Exchange Rate Demand
Confidence in the Canadian Dollar (CAD) has been largely shored up this week by a resurgence in the price of oil. Markets were greatly encouraged by the news that US crude oil inventories had unexpectedly fallen by -4.9 million barrels, suggesting that global oversupply may be beginning to ease somewhat. With members of the Organisation of the Petroleum Exporting Countries (OPEC) set to meet later this month to discuss a potential production freeze, Brent crude has broken back above the $40 per barrel mark.
The appeal of Pound Sterling (GBP) was dented as a result of revelations in the so-called ‘Panama Papers’ data leak, which pointed to a number of British Oversea Territories as key locations for tax avoidance and evasion. In the absence of particularly motivational UK data in the latter half of the week the currency has also been pushed lower by the latest developments in the ‘Brexit’ debate. This was prompted by the UK government’s decision to fund a pro-EU leaflet campaign with taxpayers’ money. Naturally this has caused some vocal objections from the ‘Leave’ camp, putting the government under fresh pressure and damaging general market confidence.
Dovish Fed Minutes Push Pound Sterling to Canadian Dollar (GBP/CAD) Exchange Rate to Eleven-Month Low
A far stronger-than-expected increase in Canadian Building Permits shored up the ‘Loonie’ further on Thursday, as the figure rose from -9.8% to 15.5% on the month in February. This bullish improvement seems to suggest that the domestic construction sector is experiencing renewed growth, while equally indicating a boost in the housing market. With oil prices remaining on an uptrend this reassurance in the recovering health of the Canadian economy offered support to the Canadian Dollar, although as Eric Theoret of Scotiabank notes ‘domestic risk remains relatively limited, leaving the focus squarely centred on broader developments and the market tone’.
The dovish tone of the March Federal Open Market Committee (FOMC) meeting minutes also offered a rallying point for the Canadian Dollar, as the decreasing odds of an imminent Fed interest rate hike eased pressure on commodity-correlated currencies. Although dissent is still clear amongst the FOMC there was not enough hawkishness on display to drive markets to bet on an April hike, improving the appeal of the ‘Loonie’ across the board. As a result the GBP/CAD currency pair dipped further to reach an eleven-month low of 1.8380.
Pound Sterling (GBP) Exchange Rate Weakens with Disappointing Industrial Production Data
Some measure of strength returned to the Pound on the back of the latest Halifax House Price Index, which showed that prices had risen bullishly from 9.7% to 10.1% in the three months to March. In spite of increasing concerns over the heat of the UK housing market this helped the GBP/CAD exchange rate to stage something of a recovery during Thursday’s European session, climbing back to 1.8558, although the pairing failed to hold onto its gains for long.
The mood towards the Pound weakened once more on Friday morning with the publication of the UK’s industrial and manufacturing production figures for February. Investors were disappointed to find that the country’s industrial output had unexpectedly contracted on the year, falling from 0.1% to -0.5%. This decline was exacerbated by a weaker manufacturing production result, which showed a contraction of -1.8%, and indicated that the future of the UK steel industry is likely to remain bleak.
Nevertheless, while the UK trade deficit also widened markedly on the month, Alan Clarke of Scotiabank suggests that this negative trend may not last as ‘manufacturing should have a better time once the effects of the weaker Pound feed through, as long as pre-Brexit vote uncertainty doesn’t get in the way.’
GBP/CAD Exchange Rate Forecast: Higher Canadian Employment Predicted to Boost ‘Loonie’
Ahead of the weekend Canadian employment data is expected to provoke some fresh volatility for the GBP/CAD exchange rate. Markets anticipate a solid uptick of 10,000 in the Employment Change measure, although this is not expected to alter the domestic Unemployment Rate. Even so, any additional signs of improvement within the Canadian economy are expected to see the ‘Loonie’ trend higher against rivals.
Barring a major slump in the oil price it seems likely that the GBP/CAD currency pair will thus remain on a downtrend at the end of the week. However, a Pound Sterling rally could be possible in the wake of Tuesday’s UK Consumer Price Index report. Should domestic inflationary pressure be found to have continued rising in March the Pound can be expected to strengthen across the board, in spite of the still limited chances of the Bank of England (BoE) adopting a more hawkish tone in the near future.
Current GBP, CAD Exchange Rates
At the time of writing, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was slumped in the region of 1.8422, while the Canadian Dollar to Pound Sterling (CAD/GBP) pairing was making gains around 0.5424.