Slowing Pace of UK Wage Growth could Trigger GBP/CAD Exchange Rate Decline
The Pound to Canadian Dollar exchange rate has steadily risen on the week starting 12th February, but GBP remains vulnerable to shocks from upcoming UK wage data.
The specific stats that could trigger GBP/CAD volatility are average earnings figures out on 21st February; traders will be comparing the data to UK inflation rate readings.
Current predictions are for the pace of average earnings excluding bonuses to have slowed in December, while earnings with bonuses aren’t expected to have changed.
In either case, the pace of wage growth will remain below the rate of inflation, which means that the UK will still be in the grips of a wage squeeze situation.
If UK wage growth picks up unexpectedly, the Pound could rally against the Canadian Dollar because this will boost the odds of a Bank of England (BoE) interest rate hike.
A reduced UK wage squeeze means that conditions are more stable for UK households, so raising interest rates would be less of a shock to finances.
The BoE has previously remained cautious about hiking interest rates, due to high levels of household debt staying policymakers’ hands.
Higher Canadian Inflation could Trigger CAD/GBP Exchange Rate Rise
The Canadian Dollar may turn volatile against the Pound in the near-term, when national inflation rate figures for January are announced on 23rd February.
Inflation levels are a factor for the Bank of Canada (BOC) when it comes to deciding interest rates, with higher inflation raising the odds of a near-term rate hike.
With that in mind, current expectations are for base year-on-year inflation to stay at 1.9% in January, but core inflation is tipped to rise from 1.2% to 1.24%.
The core reading strips out volatile factors such as fuel and food prices, but the overall base figure is still considered more important by economists and traders.
If Canadian inflation remains at 1.9% as forecast, the Canadian Dollar could appreciate because of trader assumptions that the BOC will feel pressured to raise interest rates.
Canadian Dollar to Pound Exchange Rate Rally possible on CA GDP Growth
Looking further ahead, the Canadian Dollar to Pound exchange rate could also be influenced by CA GDP growth rate stats out on 2nd March.
The data will cover the fourth quarter of 2017 and is tipped to show a rise in the base and annualised growth rate readings.
As with the inflation stats, higher GDP growth in Canada may also leads to Canadian Dollar gains because of positive implications for future interest rate decisions.