Foreign Currency Market Update – GBP / CAD Update
The Pound recorded strong gains against the Canadian Dollar during Friday trading following a surprising data release in the US and comments from eurozone policymakers.
The future performance of the Canadian Dollar remains heavily dependent upon the economic situation over the border in the States, so the latest US Durable Goods Orders data, published a few hours prior to the weekend market shutdown, were closely-monitored. Analysts had been anticipating only a slight monthly increase for the March figure, so the result came of 4.0% served to stoke market rumours that the US Federal Reserve may opt to increase its key interest rate as soon as June. Such a move would dampen demand from American firms and consumers for Canadian imports, harming the Loonie.
Meanwhile, on the other side of the Atlantic, Friday also brought the latest meeting between Greece’s hard-line left wing leaders and the eurogroup of Finance Ministers in Riga, Latvia. The men from Brussels had previously billed this get-together as make-or-break for Greece and demanded that the debt-burdened Hellenic state bring with them a comprehensive list of economic reforms to the meeting. In the end, the Athens contingent failed to bring their inventory, but the eurogroup decided against cutting Greece’s emergency funding, for now at least. This represented a positive for the risk-driven Canadian Dollar, but statements suggesting that the patience of Europe’s policymakers is beginning to wear thin held back the Loonie, along with the other Commodity Dollars, during late trading.
Jeroen Dijsselboem, head of the eurogroup, summed up the mood in Riga, stating that ’big, big, problems’ need to be overcome before a fresh debt deal for Greece can be reached. The potential for a Greek debt tragedy remains a real threat to the Canadian tender. The prospect of such a situation developing sent GBP CAD Northwards to an intraweek high of 1.8510. A further deterioration in the Greek debt standoff has the potential to propel the GBP CAD exchange rate back up towards the 1.8913 which it touched off during the final trading day of last month.
Looking ahead, this week’s session could be seminal for GBP CAD. The latest US Federal Reserve monetary policy decision on Wednesday evening is sandwiched between growth data from both the UK and Canada. Tomorrow’s British GDP numbers are expected to reveal a drop in the quarterly pace of expansion of the domestic economy. Such an outcome could send GBP CAD back down into the 1.8100s. However, any hint from the US central bank the next day that an interest rate hike is on its way would have a diametrically opposite effect on the pair.
Heads Up
Summary of major upcoming data releases that we think may move the market.