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Pound to Canadian Dollar Exchange Rate Rangebound as Canadian Inflation Increases

Canadian Dollar Currency Forecast

The Pound to Canadian Dollar exchange rate was rangebound today, as the Canadian Dollar pushed higher on positive Canadian inflation.

At the time of writing the pair are currently trading at around CA$1.7618.

Pound (GBP) Supported by UK Inflation Rate Data

GBP investors are becoming increasingly optimistic over the state of the UK economy as the success of the vaccine rollout and hoped easing of lockdown restrictions keep the Pound higher.

Furthermore, year-on-year inflation edged up higher to 0.7% in January from 0.6% in December.

Samuel Tombs, chief UK economist at Pantheon Economics said:

‘January’s small rise in CPI inflation marks the first step this year towards an above-target rate by the autumn.’

Despite a third national lockdown announced at the start of January, inflation managed to rise, signifying to investors that the start of the UK’s economic recovery will begin soon, and continue throughout 2021.

Janine Boshoff, macroeconomic economist at NIESR, said that:

‘We expect inflation to rise in the latter half of the year as the economic recovery gains pace on the back of a successful vaccination programme and higher producer costs are passed on to consumers.’

Canadian Dollar (CAD) Rallies as Canadian Inflation Impresses

The Canadian Dollar rallied today as the currency found support in rising oil prices and an increase in inflation at the start of 2021 in Canada.

Although hit by a drop in market sentiment at the start of the week, as the US Dollar (USD) recovers from its losses, the Canadian Dollar has limited its week’s losses today as oil prices rise.

Canada’s annual inflation rate increased to 1% in January, up from a year-on-year increase of 0.7% in December.

Senior Economist at CIBC Capital Royce Mendes said:

‘Higher gasoline prices drove some of the gains in the headline index. But a rebound in durable goods following greater than usual holiday discounts also added upward pressure on inflation in January.’

‘Pockets of weakness were, however, still evident, with prices for hard-hit services such as airline fares falling further during the month.’

Pound to Canadian Dollar Outlook: Retail Sales Data in Focus

Pound investors will be looking ahead to Friday’s PMI and retail sales data releases, which will give an insight into the UK’s economy at the start of 2021.

If the data manages to beat forecasts despite the national lockdown, investors will be optimistic surrounding the UK’s economic recovery and Sterling will remain appealing, however the UK services PMI is forecast at 41, which indicates another month of contraction in the sector during the national lockdown.

Friday will also see the release of Canada’s retail sales figures.

If the Canadian retail figures miss forecasts or Canada’s coronavirus situation worsens, then the Canadian Dollar will suffer further losses.

The GBP/CAD exchange rate may also be moved by any coronavirus developments in the UK, with a continuing positive tone surrounding the easing of lockdown restrictions pushing GBP higher.