The Pound Sterling to Canadian Dollar exchange rate softened to a session low of 1.883 on Tuesday as a rise in oil prices supported the ‘Loonie’.
Sterling found support earlier in the session after a Construction Purchasing Managers Index (PMI) beat economist forecasts.
Despite the better-than-expected report, the Pound was unable to push higher as investors continued to speculate that the UK economy is experiencing a slowdown, and as attention shifts to Thursday’s Bank of England interest rate announcement.
BoE policy makers are expected to leave rates unchanged and economists will be looking for any signs that the bank will defer raising rates until 2016.
The report released today showed that activity in the UK construction expanded at a faster pace than expected in January and rallied from the 17-month low recorded in December.
According to Markit/CIPS, the construction PMI rose to a seasonally adjusted figure of 59.1, a jump from the 57.6 seen in the preceding month and beat economist expectations for a drop to 57.0. In a PMI, any figure above 50 indicates expansion whilst a number below indicates contraction.
Oil Price Rise Supports Canadian Dollar
Despite the positive UK data, the Canadian Dollar was able to hold onto gains as it found support from speculation that oil prices could soon begin to rise.
The speculation has been fuelled by expectations that a sharp decline in US drilling activity and the conflicts in Libya and Iraq will result in a reduction in global supplies.
A cut in supply would send prices higher and ease the supply glut has caused the commodity’s value to tumble in recent months.
Boosted by American shale oil companies suggesting that the global glut in crude is slowly easing, the price of Brent crude rose by $2.63 a barrel to $55.62, a one-month high, building on the 8% rise seen last Friday, which was the biggest one-day gain since 2009.
PPI Data in Focus
The GBP/CAD exchange rate is likely to fluctuate later in the session and as the week progresses due to the release of Producer Price Inflation data.
On a monthly basis, prices are forecast to fall to -0.5% whilst on an annual basis prices are expected to drop to 0.8% from the previous figure of 1.9%.
Wednesday will see the release of the latest Canadian Ivey PMI report which is forecast to fall from a reading of 55.4 to 54.9.
