Pound to Canadian Dollar Exchange Rate Surges Following Speech from BOC’s Poloz
A surprisingly dovish tone from the Bank of Canada (BOC) Governor helped the Pound to Canadian Dollar (GBP/CAD) exchange rate to surge on Tuesday afternoon, despite a lack of notable market appetite for the Pound (GBP).
Despite not being able to sustain gains and slipping from 1.7773 to 1.7746 last week, GBP/CAD’s Tuesday surge took it above last week’s best levels.
In fact, GBP/CAD briefly touched a high of 1.8050 on Tuesday – the pair’s best level since the Brexit vote in 2016.
GBP/CAD gains were largely due to broad weakness in Canadian Dollar (CAD) trade, following a surprisingly dovish speech from BOC Governor Stephen Poloz.
The crux of Poloz’s speech regarded untapped potential in Canada’s labour force and economy overall. He entertained the possibility that Canada’s job market could expand by a further half a million workers.
Poloz took a cautious stance on monetary policy too and noted that rather than continue to hike Canadian interest rates quickly it would be ideal to allow growth and productivity to rise.
According to Avery Shenfeld, Chief Economist at CIBC World Markets;
‘The Governor’s choice of topics is in line with our view that he’s looking for reasons to take rate hikes slowly,
We’ll retain our call for only one more quarter point hike this year.’
The BOC Governor’s dovish stance caused BOC interest rate hike bets to drop, notably lowering the Canadian Dollar outlook.
Pound (GBP) Exchange Rate Outlook Little Changed Following UK Spring Statement
Tuesday’s European session saw the UK Treasury hold its Spring Statement. UK Chancellor Philip Hammond discussed updates on the Treasury’s UK fiscal policy and economic forecasts.
Investors were slightly pleased by news that Britain’s 2018 Gross Domestic Product (GDP) growth projection from the independent Office for Budget Responsibility (OBR) had been upgraded from the 1.4% forecast last November to 1.5%.
This boosted market hopes that Brexit uncertainties were not slowing UK economic activity as much as previously feared. According to the OBR report;
‘The vote to leave the European Union appears to have slowed the economy, but by less than we expected immediately after the referendum – thanks in part to the willingness of consumers to maintain spending by reducing their saving.’
However, overall the OBR noted that little had ultimately changed in Britain’s economic outlook. The economy has not improved much since the last budget in November.
Overall, while Hammond’s tone was optimistic, the OBR’s cautious tone was still gloomy enough to keep a lid on Pound movement.
Pound to Canadian Dollar (GBP/CAD) Forecast: Brexit and Political Developments in Focus
With no hugely influential UK or Canadian data due for the remainder of the week, the Pound to Canadian Dollar (GBP/CAD) exchange rate is on track to end the week higher.
However, this still depends on factors such as risk-sentiment, which could be impacted by global political news.
For example, the Canadian Dollar has the potential to strengthen in the coming days if the US Presidential administration’s stance on trade tariffs or the North American Free Trade Agreement (NAFTA) softens in some way.
On the other hand though, GBP/CAD could continue to climb despite a lack of Pound demand if investors become increasingly hesitant to buy risk-correlated currencies like the Canadian Dollar.
Canadian Dollar trade could be influenced by Canadian data including ADP’s February employment data and January manufacturing sales towards the end of the week.
As for the Pound, it is likely to remain relatively range bound amid UK economic and Brexit uncertainty – at least until next week’s major UK inflation data and EU summit news.