Foreign Currency Market Update – GBP / CAD Update
A sharp drop off in the price of crude oil triggered a spike in the GBP CAD exchange rate during yesterday’s session. The pair had been changing hands down in the 1.7700s as recently as last Thursday, but the fall of almost 6% in the asking price of a barrel of Brent Crude yesterday hit the Canadian Dollar hard, sending GBP CAD up to 1.8174 during late trading – its highest level since Christmas.
The shift lower for oil, which hits the export-driven Canadian economy harder than most, was fuelled by ongoing concerns that the world economic recovery might encounter difficulties during 2015. Opinion polls continue to suggest that the left-wing Syriza Bloc may win the Greek General Election on 25th January; such a move would be likely to stoke market whispers regarding a Greek exit from the eurozone – a development which could in turn dampen economic activity in the economy of one of Canada’s premier trading partners. Meanwhile, the situation on the Eastern edge of Europe remains febrile, with Moscow refusing to end its military manoeuvres on the Ukrainian border. Support for the Loonie is likely to remain relatively subdued while these tinderbox situations persist.
On the domestic front, last Friday’s session proved to be a decidedly mixed one for the Canadian Dollar. The closely-monitored Canadian Net Change in Employment data, out just before the weekend market shutdown, surprised analysts by showing at below zero. Although December’s US job creation data, published at the same time, beat expectations, the Loonie still gave up ground against Sterling. If the forward move for GBP CAD continues, then the next target heading higher for the pair comes at last month’s high of 1.8401.
However, recent UK data releases threaten to weigh down Sterling moving forward. The UK unit started last week with a whimper following the publication of a brace of disappointing PMI surveys, one from the construction sector, the other from the services sector. Worse was to follow when this morning’s inflation data revealed that the pace of British price rises had dipped to its joint lowest level on record. The news may serve to anchor the Pound into the medium term; if this proves to be the case, then expect GBP CAD to fall towards its key interim floor at 1.7765.
Heads Up
Summary of major upcoming data releases that we think may move the market.