Market Risk Aversion Keeps Floor Under Pound Canadian Dollar Exchange Rate
Renewed market anxiety over tightening Covid-19 restrictions around the world helped the Pound to Canadian Dollar (GBP/CAD) exchange rate hold onto a positive footing.
As the odds of a first quarter global recovery from the pandemic appeared to diminish further the risk-sensitive Canadian Dollar (CAD) fell out of favour.
Oil prices weakened even in the face of a solid uptick in the fourth quarter Chinese gross domestic product report, which saw growth fall short of forecast even as it maintained strong momentum.
While the UK closed its air corridors this was not enough to drag Pound Sterling (GBP) lower against its softening rival, even as fears over the domestic growth outlook picked up once again.
Canadian Dollar Vulnerable to Drop in Manufacturing Sales
The mood towards the Canadian Dollar could sour further on Tuesday with the release of November’s Canadian manufacturing sales data.
With sales expected to show a -0.1% contraction on the month confidence in the health of the Canadian economy looks set to weaken.
As long as the economy shows signs of slowing in response to the ongoing pandemic disruption investors could see limited to favour the commodity-correlated currency over its rivals.
On the other hand, a positive month of growth for manufacturing sales would suggest a greater level of resilience within the sector.
If sales hold up this may offer CAD exchange rates a temporary rallying point, especially in the face of the relative strength of the US Dollar (USD).
However, persistent sluggishness in the oil market could still keep a lid on any potential Canadian Dollar gains in the days ahead.
Higher UK Inflation Rate Forecast to Offer GBP/CAD Exchange Rate Boost
GBP exchange rates could find a rallying point on Wednesday, meanwhile, if December’s UK inflation data improves as forecast.
As forecasts suggest that the headline inflation rate strengthened from 0.3% to 0.5% on the year the case for any Bank of England (BoE) dovishness looks set to weaken.
Even a modest uptick would indicate that inflationary pressures are picking back up even in the face of Covid-19 disruption.
Stronger inflation would give BoE policymakers less reason to consider any further monetary loosening measures, offering the GBP/CAD exchange rate a solid boost.
However, if the inflation rate fails to pick up this could leave the Pound exposed to a fresh bout of selling pressure in the near term.
Anticipation ahead of the release of January’s UK manufacturing and services PMIs may also put pressure on the GBP/CAD exchange rate over the course of the week.
In the absence of any encouraging signs of resilience from the UK economy the potential for Pound gains appears limited.
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