Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Slides despite Downbeat Canadian Inflation
UPDATE: The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate slumped by around -0.5% on Wednesday afternoon. This left the pairing trading at around CA$1.7360.
The Canadian Dollar continued to make gains against a weaker Pound despite dire inflation data.
Canada’s inflation rate came in below forecasts of 0.5% in July, as consumer prices fell back to 0.1% last month.
Statistics Canada has noted the drop is largely due to a ‘broad-based slowdown in price growth’. This is across both goods and services with the majority of the fall due to plane tickets and accommodation.
Doug Porter, chief economist at BMO Capital Markets noted:
‘There was obviously a downside surprise, especially on the headline inflation. Any talk of upside risk for inflation has obviously been put on the back-burner.’
Meanwhile, the Bank of Canada (BoC) noted interest rates will remain near record lows for another two years. The central bank also noted it is likely inflation will remain weak in the near term.
Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Slides as OPEC+ Expected to Review Compliance
The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate edged -0.2% lower Wednesday. This left the pairing trading at around CA$1.7400.
The oil-sensitive ‘Loonie’ made slight gains today despite oil prices easing further on concerns US fuel demand may not recover as quickly as hoped.
Recovery worries increased as stalled talks on a US economic stimulus package offset a larger-than-forecast fall in US crude stocks.
US President Donald Trump also noted during yesterday’s session that he has postponed talks with Beijing.
According to Hiroyuki Kikukawa, general manager of research at Nissan Securities:
‘Demand concerns weighed on oil prices, with U.S. economic stimulus still nowhere in sight and U.S.-Sino trade talks being postponed.
‘But losses were limited by positive news such as a drop in US crude stocks.’
Investors also eagerly awaited the latest OPEC+ meeting later today to review compliance with oil cuts.
According to unanimous sources, the group of oil producers is unlikely to change its oil output policy. Instead, it is likely the meeting will focus on compliance by countries such as Iraq, Nigeria, and Kazakhstan.
Saudi Arabia’s state news agency, SPA reported today that the country’s King Salman bin Abdulazi spoke to Nigeria’s President Muhammadu Buhari and stressed the importance of compliance by all OPEC+ members.
Sterling (GBP) Slides Jump in UK Inflation Expected to be Temporary
The Pound slipped against the Canadian Dollar this morning after the latest UK inflation rate unexpectedly rose by 1% in July.
Consumer prices rose to the highest level since March as clothing shops refrained from the usual summer discounts. According to the Office for National Statistics (ONS), clothing and footwear were the largest contributors to inflation in July.
Data also revealed core inflation hit its highest level in a year. The core Consumer Price Index (CPI) rose from June’s 1.4% to 1.8% last month despite markets anticipating a slump to 1.3%.
However, headline inflation is expected to drop back next month as the various measures announced by the Chancellor take effect.
Commenting on this morning’s data Jai Malhi, Global Market Strategist at J.P. Morgan Asset Management (JPMAM) noted:
‘Investors have been questioning whether a sudden rise in inflation is on the cards given the sheer amount of money governments and central banks are showering round the economy. Today’s inflation release shows that prices in the UK are certainly bouncing again.
‘The upside inflation surprise highlights to us that Covid-19 was a shock to supply as well as demand. Companies having to operate at lower capacity may have to raise prices to cover sunk costs. At this stage we doubt this will prevent the Bank of England providing further support to the economy. But if these upside surprises continue it may add some hesitancy.’
Pound Canadian Dollar Outlook: Will Canadian Inflation Boost CAD?
Looking ahead to this afternoon, the Canadian Dollar (CAD) could make gains against the Pound (GBP) following the latest Canadian inflation data.
If inflation improves more than expected in July, it could offer the ‘Loonie’ an upswing of support.
Added to this, the oil-sensitive CAD could be offered further support if the latest OPEC+ meeting boosts sentiment.
Meanwhile, the Pound could claw back some losses following the release of the latest Industrial Trends Orders from the Confederation of British Industry’s (CBI).
If orders rise once again, it could offer Sterling some support and leave the Pound Canadian Dollar (GBP/CAD) exchange rate flat.
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