Foreign Currency Market Update – GBP / CAD Update
A hat-trick of positives saw the Canadian Dollar strengthen to its highest level against the Pound since 4th February during last week’s session. Tuesday’s stronger than expected Canadian Gross Domestic Product data led the way, revealing that the North American nation’s economy had expanded by an annualised 2.8% during December. Analysts had been anticipating a showing of only 2.5%, so the news came as a boon to Loonie-holders.
A decent minority of market participants had been pricing-in another interest rate cut from the Bank of Canada (BoC) on Wednesday – the announcement from the Ottawa central bank that it would be maintaining its cost of borrowing at its current level of 0.75% therefore provided the local tender with another boost. However, the BoC announcement was not as much of a positive as it might have been for the Loonie – comments from BoC Governor Stephen Poloz a fortnight ago that he, ‘wanted to see how the economy actually responds,’ to the surprise January rate cut from his bank, meant that any further policy loosening was, in reality, highly unlikely last week.
On a similar note, Friday’s US jobs figures were ostensibly a good thing for the Canadian economy and the local unit. They revealed that, for the twelfth month on the trot, over 200,000 positions had been added to the total payroll of the combined non-agricultural sectors of the vast American economy. The accompanying data which pointed to a drop in the overall level of US joblessness last month increased the feeling amongst analysts that America’s economic recovery is gaining traction. However, the news caused investors to pull forward their expectations regarding the timing of the next US Federal Reserve interest rate increase; futures markets are now pricing-in June as the most likely month for the first in what would be likely to be a series of Fed rate hikes. Such a move would dampen demand for Canadian exports into the States, weakening the Loonie and potentially sending GBP CAD up towards the psychologically significant two to one threshold.
In the meantime, the next near-term key risk event of note for CAD comes on Friday in the form of last month’s Canadian labour market numbers. Expectations are low for the data, with a slight increase in the total level of unemployment considered likely by analysts. If the result beats this target, then the Loonie could enjoy a burst of support which would potentially see GBP CAD trade back down in the 1.8000s.
Heads Up
Summary of major upcoming data releases that we think may move the market.