Foreign Currency Market Update – GBP / CAD Update
The Canadian Dollar softened to its weakest level against Sterling since November 2008 during last Tuesday’s trading session. The break upwards to 1.9558 for the GBP CAD exchange rate was fuelled by renewed fears that Greece’s new policymakers might be about to lead the debt-addled Hellenic state to a chaotic eurozone exit. The eurogroup of Finance Ministers has assented to Athens’ request for a 4-month extension to its bailout loan the previous Friday; however the easing of Greece’s terms was contingent upon the new Syriza-led coalition government presenting a package of economic reforms at the start of last week.
When the Monday deadline for the submission of the list passed without the paperwork materialising, market participants began panicking. The resultant dip in investor sentiment hurt the export-driven Canadian unit, sending GBP CAD sharply higher. Tuesday was a better day for the Loonie – the men from Athens produced their list which included plans to enforce Greek citizens to pay their taxes and to clamp down on cigarette smuggling. Hardly ground-breaking, but it was enough to placate the eurogroup and to get a loan extension.
Meanwhile, on the domestic front, Thursday’s higher than anticipated inflation numbers revealed that the pace of Canadian price rises was running at a relatively heady year-on-year 2.2% during January. This figure well and truly takes the pressure off the Bank of Canada’s policymakers to countenance another interest rate cut when they make their latest policy announcement this afternoon. A ‘no change’ announcement from the BoC would still be likely to cause a mini-relief rally for the Loonie, potentially propelling GBP CAD back down through the 1.9000 threshold for the first time since the middle part of February.
The period since the currency market shut for the weekend has brought further positive news for the Canadian unit – Saturday’s announcement from the People’s Bank of China that it was cutting its headline interest rate for the second time in the space of three months should help fuel demand for Canadian raw materials, helping the Loonie. Furthermore, yesterday’s Canadian growth numbers for the final month of 2014 revealed that the nation’s economy had expanded by almost 3% since the previous December. The subsequent support for the Canadian unit saw GBP CAD peel back to 1.9106.
However, the Loonie is not without near-term threats; last Friday’s official statistics revealed that America’s economy expanded at a lower than had previously been estimated 2.2% during the final three months of last year. If Friday’s key jobs figures suggest that the US economic recovery is beginning to wobble, then expect the Canadian Dollar to lose ground. A move back up towards 1.9558 is not out of the question in such a circumstance.
Heads Up
Summary of major upcoming data releases that we think may move the market.