Foreign Currency Market Update – GBP / CAD Update
Friday proved to be the key session for Canadian Dollar-watchers during last week’s trading. The Pound Sterling Canadian Dollar exchange rate dropped to its lowest level since the second half of January as North American trading got underway on the final session of the week. The pair’s plunge to 1.8149 came as a response to the latest inflation data which revealed that the pace of Canadian price rises had increased to a year-on-year 1.2% last month. The result was ahead of analysts’ expectations and far in advance of the level of inflation in most other major Western economies, making another near-term interest rate cut from the Bank of Canada highly unlikely. The Canadian unit enjoyed a burst of support as a consequence.
Official data pointing to an increased core level of inflation in the US, published at the same time, added to the upside for the Loonie on the day. However, the Friday afternoon gains for the Canadian tender were more than cancelled out by a generalised shift out of risk by investors. All thirty component companies of Wall Street’s headline Dow Jones Industrial Average index recorded losses during the final session of last week as market participants fretted over the possibility of a Greek exit from the eurozone.
US President Barack Obama addressed these concerns at a joint press conference with Italian Prime Minister Matteo Renzi at the White House late on Friday, instructing Greece that it, ‘needs to initiate reforms’. Obama went on to suggest that, ‘they have to collect taxes. They have to reduce their bureaucracy and (instigate) more flexible labour practices.’ A failure by Greece’s left-wing leadership to formulate and present to her creditors a comprehensive list containing such proposals by Friday’s deadline would see Athens default on her loans. The prospect of such an outcome over coming days could trigger a flight to safety from investors which would hit the commodity-driven Canadian Dollar hard.
The general trend for GBP CAD last week had been to the downside until Friday’s afternoon’s session. The Loonie was well-supported in spite of the downbeat tone of Chinese data releases during the first half of the week’s trading. Weekend data pointing to a sharp annualised fall in the level of both imports into China and of Chinese exports to the rest of the world rang alarm bells for Canada’s numerous exporters.
Meanwhile, official Gross Domestic Product numbers, published early on Wednesday, added to the impression that all is not well with the Chinese economy. The data pointed to a drop in the level of Chinese economic activity from 7.3% during the final three months of 2014 to 7.0% in the three months to the end of March. Concerns regarding an end to the Chinese economic miracle and the potential for a Greek debt meltdown could anchor support for the Loonie this week. In such an instance look for the GBP CAD exchange rate to track Northwards towards its most recent peak of 1.8913. However, if the EU/IMF/ECB ‘Troika’ opts to throw Greece yet another debt lifeline on Friday, then expect the Canadian unit to enjoy a fresh bout of support before the weekend market shutdown.
Heads Up
Summary of major upcoming data releases that we think may move the market.