Foreign Currency Market Update – GBP / CAD Update
The final stretch of last week’s session saw the GBP CAD exchange rate spike to its highest level since the middle part of 2009. Friday’s break higher to 1.9276 for the pair was largely fuelled by the Bank of Canada’s surprise decision of the previous week to cut its headline interest rate.
Geo-political events have added to the selling pressure on the Loonie during the last seven days, with the fallout from the radical Syriza party’s landslide victory in Greece’s general election sapping the market of risk appetite. Last Thursday’s meeting between new Greek Finance Minister Yanis Varoufakis and eurogroup Finance Chief Jeroen Dijsselbloem was an awkward one; reports suggest that the shaven-headed, leather-clad, Money Man from Athens warned Dijsselbloem that he would have no further dealings with the EU / IMF / ECB ‘Troika’ which had previously lent Greece €240bn.
The ‘Greek Problem’ took an unexpected turn for the better during Monday’s session when the European Commission suggested that it is seriously considering replacing the ‘Troika’ which has been monitoring Greece’s adherence to the terms of its bailout agreement. The move, which appears to be a concession to the debt-addled Hellenic state, was viewed as an olive branch by investors, and global risk sentiment perked up as a result.
Elsewhere, Friday’s session brought a turnaround in the price of a barrel of Brent Crude Oil, which had been languishing at close to the $46 threshold as recently as the middle part of last month. The shift higher for oil was triggered by the revelation of a sharp drop in applications for exploratory licences, which hinted that the world’s major oil firms may be ready to constrict supply. Crude jumped by around 3.5% on Monday and by a slightly lesser amount yesterday in response. The renewed upward move for oil is a massive plus for the export-driven Canadian economy and the upshot saw the GBP CAD exchange rate slump to as low as 1.8764 yesterday.
A continuation of the increase in the wholesale price of oil would be likely to see GBP CAD trend downwards towards the 1.8000 threshold where it encountered support during the middle part of last month. However, Friday’s North American labour market data could have the reverse effect; if December’s US job creation numbers are strong and the Canadian overall unemployment figures are below par, then GBP CAD could break back above the 1.9000 level once more.
Heads Up
Summary of major upcoming data releases that we think may move the market.