Pound-Canadian Dollar could extend its decline if UK GDP disappoints, while higher oil prices may provide further support for the Loonie.
The Pound to Canadian Dollar (GBP/CAD) exchange rate retreated last week as fears that a rise in borrowing costs could pose a risk to the UK’s upcoming Autumn budget.
At the time of writing, the GBP/CAD exchange rate traded at CA$1.8718. Down around 0.5% from the start of last week’s session.
DAILY RECAP:
Pound (GBP) struggled to make headway last week, with Sterling bearing the brunt of the turbulence sweeping through global bond markets.
UK gilts were among the hardest hit, with the 10-year gilt yield breaking above 5.25% and striking a 19-year high, while yields on 30-year gilts climbed to their highest levels since 1998.
Although the sharp rise in yields formed part of a broader sell-off in government bonds, concerns that higher borrowing costs could eat further into the limited fiscal headroom available to Chancellor John Healey ahead of his first Autumn Budget, meant there was a disproportionate impact on Sterling.
The Canadian dollar (CAD) got off to an underwhelming start last week, with CAD demand being undermined by lingering concerns about a potential US-Canada trade war.
However, the ‘Loonie’ then received a shot in the arm in mid-week trade following the Bank of Canada’s (BoC) latest interest rate decision.
While the BoC kept interest rates on hold as forecast, its guidance warned of upside risks to inflation, which investors interpreted as a hawkish nod to a potential need to tighten monetary policy in the future.
The end of the week then saw the publication of Canada’s latest jobs report, with the ‘loonie’ coming under pressure, following a shock contraction in employment growth last month.
Near-Term GBP/CAD Forecast: Slowdown in UK GDP to Weigh on Sterling?
Looking ahead to this week’s session, the Pound to Canadian Dollar (GBP/CAD) exchange rate may extend its losses as markets digest the UK’s latest GDP figures.
Economists expect month-on-month economic growth to have slowed in July, with a soft reading potentially likely to drag on Sterling if it is seen as weakening the odds of a Bank of England (BoE) rate hike later in the year.
Meanwhile, in the absence of any notable domestic data, movement in the ‘loonie’ may be tied to oil price dynamics, with further uncertainty in the Middle East potentially propelling the commodity and CAD exchange rates higher.
Our currency coverage draws on live market data, official economic releases and published bank research.
