Foreign Currency Market Update – GBP / CAD Update
Last Friday’s US jobs figures provided strong support for the Canadian Dollar, causing the GBP CAD exchange rate to spike lower as the weekend market close approached. The pair dipped into the lower 1.8500s following the publication of the March labour market data which revealed that, for the first time in over a year, less than 200,000 new jobs had been generated in the States. The official numbers also contained a substantial downward revision to the January and February American job creation numbers – almost 70,000 fewer jobs had been generated during the first two months of the year than had previously been believed.
The downbeat US data was viewed by analysts through the prism of last month’s comments from the Federal Reserve which suggested that a ‘considerable improvement’ would be required in the nation’s jobs numbers before an American interest rate could be considered. Any future tightening of monetary policy from the world’s premier central bank would dampen demand for Canada’s plentiful natural resources, hitting both the Canadian economy and the Loonie hard. Tomorrow brings the publication of the full minutes of the March Federal Reserve policy meeting and they are likely to re-enforce the Fed’s message that the US economy is not yet ready for a rate hike. The Canadian Dollar would be likely to respond well to such a message.
Meanwhile, events in the UK are adding to the downward pressure on GBP CAD. Last Thursday’s televised 7-way leaders’ debate served to further muddy the already muddy waters enveloping May’s UK General Election. Nicola Sturgeon of the Scottish National Party (SNP) was widely judged to have outperformed the other six participants, apparently increasing the likelihood of a fragile ‘confidence and supply’ post-election deal which would see the SNP agree not to bring down a minority Labour Government whilst deciding on a vote-by-vote basis whether to support individual Bills. Doubts about which party or parties will be running the British economy after May 7th are likely to sap the Pound of support during the next five weeks, increasing the pressure on GBP CAD. Look for consecutive closes below its most recent low of 1.8478 to confirm the emergence of a fresh downtrend for the pair in such an event.
However, problems remain for the Canadian unit, not least of which being the continued low level of global oil prices. Friday brought a drop of almost 4% in the price of a barrel of Brent Crude and the value of ‘Black Gold’ is now hovering just above January’s multi-year low. A further drift downwards for oil prices would ramp up selling pressure on the Loonie, as would a tame showing from Friday’s Canadian jobs numbers. Such a result appears a live possibility given the negative effect which the inclement weather in North America since the turn of the year has had on the US labour market. Renewed selling pressure on the Canadian tender could send GBP CAD up through last week’s peak of 1.8913.
Heads Up
Summary of major upcoming data releases that we think may move the market.