GBP/CAD: Loonie Declines on Canada’s Disappointing GDP Data

GBP/CAD is recovering some of its recent losses, but it’s still fluctuating close to monthly lows. Currently, the pair is trading at 1.7039, up 0.24% as of 10:24 AM UTC.

The price has tumbled over 2.80% in the last few days, following a surge on December 13. The sterling thrived when it became clear that UK Prime Minister Boris Johnson won a historic victory in the election. However, the mood changed when Johnson said he wouldn’t allow any extension of the Brexit transition period beyond December 2020. Economists fear that such a tight timeline could lead to a no-deal Brexit, which is a worst-case scenario for the British economy.

Nevertheless, the pair is bouncing back on Tuesday, also because the Loonie has been under pressure on Canada’s gross domestic product (GDP) data published yesterday. Statistics Canada said that the economy surprisingly declined by 0.1% in October, while analysts polled by Reuters expected a gain of 0.1% following similar growth in September. This was the first contraction since February.

Goods-producing industries fell 0.5% while services remained unchanged. The manufacturing sector tumbled 1.4%, which is the fourth decline in the last five months.

Canada’s latest GDP figures might force the country’s central bank to ponder a rate cut.

Brian DePratto of TD Economics commented:

“Today’s report may be seem easy to dismiss on its face given the strike-related disruption was well known in advance, but moving past that impact reveals some concerning weaknesses. […] Don’t write off monetary easing in 2020 just yet.”

So far, the Bank of Canada (BoC) has maintained the benchmark interest rate unchanged since October last year. The central bank managed to resist its counterparts like the US Fed and the European Central Bank, which eased their rates on several occasions. BoC’s next rate announcement is scheduled for January 22, and economists still expect no change.

Analysts hope that the Canadian GDP will reverse next year. Robert Kavcic, a senior economist at BMO Capital Markets, commented:

“Because some of the softness is likely temporary, we look for growth to snap back above 2% in the first quarter of 2020.”

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