Foreign Currency Market Update – GBP / CAD Update
The past week has been packed full of risk events which have affected the relative value of the Canadian Dollar. The net outcome has seen the Loonie weaken dramatically, pushing the GBP CAD exchange rate up to a fresh 5 ½ year high during early trading today.
The primary factor behind the sharp selling pressure on the Loonie during recent sessions was last Wednesday’s surprise decision by the Bank of Canada (BoC) to cut its key interest rate. Analysts had almost universally been expecting Canada’s reserve bank to maintain its headline interest rate at 1.00% for another month; comments from BoC Governor Stephen Poloz in his post-decision press conference provided an explanation of the reasoning behind the decision. Poloz is concerned that, with analysts forecasting that the price of a barrel of crude will remain low for many months to come, the Canadian economy may be set to underperform other major global economies. Investors did not like what they had to hear and voted with their feet.
Sunday’s general election in Greece heaped further pressure on the export-driven Canadian unit. Exit polls, published within minutes of voting stations closing, were correct in predicting that the anti-austerity Syriza bloc had won a landslide victory. The party fell just short of winning an overall majority in the Hellenic state’s parliament, but its leader Alexis Tsipras wasted no time in teaming-up with the significantly smaller Independent Greek party to form a working government. Fears that Greece’s new leaders may seek to extricate the debt-laden state from the eurozone were accentuated by German government spokesman Steffan Siebert yesterday, when he warned that Athens must honour its, ‘prior commitments and that the new government be tied in to the reform’s achievements.’
The prospect of political uncertainty in the world’s second largest economy saw the Canadian Dollar lose further ground against Sterling. GBP CAD is now trading in territory which is uncharted during recent times. If the move out of Loonie-denominated assets continues, then GBP CAD could track higher towards the psychologically important two to one threshold.
However, last week wasn’t all bad news for the Canadian Dollar. Thursday’s session brought the announcement from the European Central Bank that it will be starting a €60bn per month Quantitative Easing programme in March. The scheme is set to run until at least September 2016. The flow of ‘easy money’ from one of the world’s premier central banks will, ceteris paribus, help the Loonie – if this sees GBP CAD retrace downwards once more, then last September’s low of 1.7536 will rapidly become a target for the pair.
Heads Up
Summary of major upcoming data releases that we think may move the market.