Foreign Currency Market Update – GBP / CAD Update
The latest US Federal Reserve monetary policy decision, announced a week ago today, provided the Canadian Dollar with a much needed shot in the arm. Although, as expected, America’s policy-setters once again opted to maintain their nation’s interest rates at their current record-low level, the tone of their accompanying statement surprised the markets.
Following an unprecedented run of domestic labour market data, which has seen over 200,000 jobs generated in the world’s premier economy during each of the last twelve months, analysts were looking for a hint that the Fed would be hiking rates sooner rather than later. The US central bank did pointedly drop the adjective ‘patient’ in describing its attitude to the timing of a rate hike, but substituted it with the advice that ‘further improvement’ would be required in the US jobs market before a rate increase could be countenanced. An eventual American interest rate hike would be viewed by analysts as the first in a series which would dampen US demand for Canada’s plentiful exports. The suggestion that market-watchers might have to wait until at least the latter part of this year before such a move from the Fed therefore favoured the Canadian Dollar, sending the GBP CAD exchange rate down to an intraday low of 1.8710 on Wednesday.
Friday’s session brought the publication of February’s Canadian Consumer Price Index inflation numbers. The key data release revealed that the annualised pace of Canadian price rises had stubbornly remained at 1.0% last month – well ahead of the level in most other developed economies, (including the UK). The implication from these numbers that the Bank of Canada’s next policy move may be a rate hike, rather that any further loosening of policy, provided the Canadian unit with further positive momentum as the weekend market shutdown approached and GBP CAD slumped to as low as 1.8667 as a result.
The near-term downside move for GBP CAD received further fuel yesterday morning with the release of the latest UK inflation figures, which showed that the pace of British price rises had slumped to a lower than anticipated 0.0% last month. The next step for the UK economy is surely falling prices and the imminent arrival of domestic deflation fuelled market whispers that the bank of England may cut its key interest rate once again before it feels ready to increase. These rumours sent GBP CAD down to its lowest level for two months during late trading yesterday and there could be further losses to come for the pair if the slight upward move in global oil prices over the past week gains momentum, benefitting the Loonie. In such an instance, GBP CAD could peel back towards its key level of support at the 1.8000 threshold.
Heads Up
Summary of major upcoming data releases that we think may move the market.