Foreign Currency Market Update – GBP / CAD Update
The Sterling Canadian Dollar exchange edged down to its lowest level since the first week of February during last Friday’s trading session. The pair tracked lower to touch 1.8794 as the week drew to a close following renewed support for the Canadian unit.
The Loonie was helped by the Reserve Bank of New Zealand’s midweek monetary policy announcement which struck a surprisingly hawkish tone. The Canadian and New Zeeland economies are similarly dependent upon the export of their plentiful natural resources, so the two nations’ monetary policies will more often than not follow convergent pathways; the RBNZ’s observation that its, ‘future interest rate adjustments, either up or down, will depend on the emerging flow of economic data,’ therefore helped the Canadian tender. Commentators had believed that a Kiwi rate hike was a distant prospect prior to this statement, but the RBNZ’s apparent assertion that an increase was now as likely as a cut to the domestic cost of borrowing favoured the Commodity Dollars, including the Canadian Dollar, en masse.
Meanwhile, Friday afternoon’s Canadian labour market data proved to be a mixed bag – the job creation element marginally beat expectations, but a slight increase in the overall level of joblessness in the North American nation served to largely cancel this out.
Looking ahead, two major risk events are set to dominate proceedings this week as far as Loonie-watchers are concerned. Tomorrow’s US Federal Reserve policy announcement is the first of these; a strong run of jobs data over the last year, which has seen twelve consecutive months where over 200,000 jobs have been generated in the US economy, has led analysts to conclude that an American interest rate hike is close at hand.
Such a move from the Fed would dampen US demand for Canadian imports, triggering downward pressure on the local unit. If Fed Chair Janet Yellen confirms that a US rate rise is on the cards, then expect the Canadian Dollar to give up ground against Sterling, sending GBP CAD up towards its February multi-year high of 1.9558.
Friday’s Canadian inflation numbers are also likely to trigger price action for the CAD. They are expected to show that the core level of Canadian price rises remained above the 2.0% threshold last month. Such a result would be likely to scupper any thoughts of an increase in domestic interest rates from the Bank of Canada, favouring the Loonie. In such a circumstance, GBP CAD could continue to track lower towards the middle part of the 1.8000 – 1.9000 range.
Heads Up
Summary of major upcoming data releases that we think may move the market.