Pound To Canadian Dollar (GBP/CAD) Exchange Rate Forecast: Bank Of Canada

The Pound Canadian Dollar (GBP/CAD) exchange rate firmed last week despite general weakness in the Pound (GBP), as the Canadian Dollar (CAD) was dented by waning strength in the US Dollar (USD) and worse-than-expected domestic PMIs.

At the time of writing, GBP/CAD is trading at C$1.7153, having risen by more than 0.3% in the past seven days.

Canadian Dollar (CAD) Exchange Rates Tumble on Poor Domestic Data

The Canadian Dollar faced numerous headwinds last week as PMIs missed expectations and Canada’s unemployment rate exceeded forecasts. An uptrend in oil prices failed to boost the currency sustainably against its peers, alongside volatile risk sentiment – which ordinarily supports the US Dollar and the ‘Loonie’ along with it.

On Monday, Canada’s manufacturing PMI for March printed at 48.9 rather than the 50.3 forecast, remaining unexpectedly in contraction territory. The data marked the eleventh consecutive month in contraction.

Yet the ‘Loonie’ initially shrugged off headwinds, climbing against the Pound. An oil price uptick may have been behind the surge in CAD support.

Into Tuesday however, CAD/GBP flatlined: trepidation amongst US Dollar investors ahead of key jobs data may have spilled across to affect ‘Loonie’ sentiment.

Midweek, the Canadian Dollar Pound exchange rate took a decisive downturn following the release of March’s services PMI, which printed at 46.4. This marked the tenth month of contraction, reflecting subdued market demand.

Paul Smith, economics director at S&P Global Market Intelligence, summarised:

‘Canada’s services economy remained mired in a downturn during March, with both activity and new business volumes declining again… The restrictive impact on market activity of high prices and elevated interest rates remains plain to see.’

CAD losses were subsequently extended into the end of the week, compounded on Thursday by a weaker USD following increased jobless claims data; and Canada’s own employment release on Friday, which revealed a greater-than-expected increase in unemployment.

Pound (GBP) Exchange Rates’ Gains Undermined by June Rate Cut Forecast

The Pound softened against several of its peers last week, though managed to climb against the ‘Loonie’ given CAD headwinds.

Monday’s Easter bank holiday left Sterling exposed to losses at the start of the week; GBP/CAD managed to make some gains on Tuesday though, amid unexpected growth in the UK’s manufacturing sector.

On Wednesday morning, a lack of domestic UK data dampened GBP traders’ enthusiasm. Speculation around interest cuts from the Bank of England (BoE) inspired headwinds, as analysts at Goldman Sachs reiterated forecasts of a June rate cut.

Experts predicted that inflation is likely to ease further in the near term, saying in a note:

‘We find that the pass-through effects from higher energy and food prices will unwind rapidly in coming months.’

Into the second half of the week, however, GBP/CAD climbed. On Thursday, the UK’s finalised services PMI for the month of March missed expectations, yet Sterling firmed against the Canadian Dollar. While services data broadly disappointed, investors were reminded that activity in the sector has remained firmly above the 50-point mark for five months.

On Friday, the UK’s construction PMI printed above forecasts at 50.2, potentially capping losses as UK house prices were shown to have fallen in March. Halifax mortgage specialists putting the data down to sticky inflation and a generally weaker risk appetite.

GBP/CAD Forecast: BoC Rate Decision on Horizon

This week, investors will be contemplating the Bank of Canada (BoC)’s interest rate decision midweek, in which the central bank is expected to keep interest rates on hold at 5%.

At the end of last month, the bank’s Senior Deputy Governor Carolyn Rogers asserted that the BoC still needed to finish the job on inflation, saying:

‘Low Canadian productivity is an emergency. Canada urgently needs to boost productivity to help hedge against the risk of higher inflation.’

If BoC speakers maintain a hawkish tone midweek, the ‘Loonie’ may climb.

In the meantime, the British Retail Consortium (BRC) is expected to reveal an increase in retail sales for the month of February, on an annualised basis. The Pound could enjoy tailwinds if the data prints as expected.

On Friday, UK GDP data will be released. The economy is forecast to have expanded in February: consequently, Sterling may enjoy support against its peers.