Foreign Currency Market Update – GBP / CAD Update
The Canadian Dollar incurred heavy losses against Sterling during yesterday’s session as investors shifted their funds out of export-driven commodity currencies. The Pound had enjoyed a decent day’s trading against all of the other sixteen most-actively traded global tenders, but of all the Sterling-denominated pairs, it was the GBP CAD exchange rate which posted the largest intraday gain.
The shift Northwards for GBP CAD on the day was largely driven by a renewed weakening of the Loonie ahead of this afternoon’s Bank of Canada (BoC) policy decision. Yesterday’s Canadian Manufacturing Sales statistics showed at further below zero than had been anticipated; it was the third monthly decline on the trot, ensuring that the BoC’s policymakers will go into today’s meeting holding further evidence that the near-term improvement in Canada’s economic situation is stalling.
An interest rate cut from the BOC later today is generally considered by analysts to be unlikely; a more probable outcome would see BoC Governor Stephen Poloz issue a glum assessment of the state of his domestic economy in the post-decision statement and hint that an easing of monetary policy might be on the cards for later in 2015. Either result would provoke a renewed bout of selling pressure on the Canadian Dollar, propelling GBP CAD back up towards its 8 ½ month high of 1.8521.
However, the outlook for the Loonie is far from being universally grim. Tomorrow afternoon brings the latest policy announcement from the European Central Bank (ECB) and a major development is forecast. Last Thursday’s session saw the Swiss National Bank (SNB) catch the markets on the back foot by revealing that it would be scrapping the 1.2000 minimum floor on the EUR CHF exchange rate which it had maintained for over three years. The announcement was taken by investors as a heavy hint that the SNB feels that it would no longer be able to maintain the EUR CHF minimum floor after tomorrow’s ECB decision – i.e. that the ECB will be announcing the instigation of an all-out Quantitative Easing scheme. If the euroland’s reserve bank does reveal such plans, then the export-driven Canadian unit is likely to hoover up strong support in the markets. In such an event, GBP CAD is likely to track lower towards its key interim floor at 1.7765 once more.
Heads Up
Summary of major upcoming data releases that we think may move the market.