The pound’s inroads against the Canadian dollar have continued this week as investors continue to push away from the riskier commodity-based currencies like the Loonie. In fact ever since the Bank of Canada interest rate meeting on Tuesday, the Canadian dollar has been losing ground against the pound and it’s major currency counterparts, with no clear level of support in sight. Indeed, currently trading in and around the 1.76 on interbank rates, pound holders are currently enjoying levels that have been achieved just 5 times in the last 12 months.
Though no further interest rate cuts were made at the meeting, the BoC provided a data filled report on the effects COVID-19 is already having on the Canadian economy and the changes it is causing to consumer habits and business leadership.
Indeed, the report highlighted the labour market as a main area of concern raising all kinds of question marks around capacity and output levels in the weeks and months ahead. In particular, the net rise in an unemployment by over a million in the month of march along with an unprecedented fall to a record low of 30 average hours per week across the Canadian economy, will do very little to support the loonie’s value in the short term.
As a result, this afternoon’s Canadian manufacturing data might set the trend for GBPCAD exchange rates as we end the week with a contraction of -0.1% forecasted. It is worth noting however that this release assess demand levels for the month of February only meaning the worst of the virus’ effects will yet to be factored in.
When Might the Canadian Dollar Recover?
Understandably, the considerable drop in oil prices was a main feature given oil is Canada’s leading export industry. When comparing to the start of the year, oil prices have drifted by well over 50% and has subsequently led to a chocking of investor confidence within the sector, once again drawing less appetite for the Canadian dollar from foreign markets. Friday’s Foreign Portfolio Investment in Canadian securities release by Statistics Canada could prove to be another market mover then. Any heavy drop from the previous $17bn reading could draw further volatility to Canadian dollars.
Interestingly, although the bank of Canada suggested that prices should rebound as the market returns to working conditions, the recovery could prove slow and arduous given the “elevated” reserves that have been produced in recent months. Given the close link between the two, there is a chance that we could see a similar pricing pattern for the Canadian dollar in the weeks and months ahead too. Something to consider if you are currently holding Canadian dollars and have a short to medium term foreign currency requirement.
If you have a requirement to buy or sell Canadian dollars or sterling, keeping informed of the latest economic data releases and the impact they may have on exchange rates is key. By completing the contact form one of our experienced Account Managers can provide you with live information and help you make an informed decision about when to make your currency transfer.