Foreign Currency Market Update – GBP / CAD Update
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate has enjoyed decent levels of support over the past week, trending upwards from 1.83 to 1.87. Friday was the most significant day for the ‘Loonie’ with the release of highly influential domestic labour market stats. The Canadian Net Change in Employment figure was forecast to record a -5.0K contraction in April, but the economy actually shed -19.7K jobs. However, one upside for the Canadian economy came in the form of the Unemployment Rate figure, with the level of joblessness holding on at 6.8% in April, when analysts had predicted an increase to 6.9%.
There are several aspects of the Canadian labour market that have been weighing on the ‘Loonie’ in recent months, including lethargic job growth and stagnant earnings. Additionally, softer wage packets have stunted consumer spending and caused a stumble in economic growth which could see the Bank of Canada (BOC) keep interest rates low throughout the remainder of 2015.
If the possibility of another rate cut becomes evident, the GBP/CAD exchange rate could climb dramatically, particularly if the possibility of a Bank of England (BoE) rate hike taking place this year becomes more likely. Monday saw the GBP/CAD exchange rate climb as the Bank of England kept interest rates on hold at 0.50%. The April meeting minutes showed the Monetary Policy Committee (MPC) remained unanimous on keeping interest rates stable, but that the decision was ‘finely balanced’ for two members. Therefore, the May decision may see a divergence in policymakers, especially as the UK general election is over. The general election resulted in a Conservative party victory which enabled the GBP exchange rate to jump against other majors on Friday, as there’s likely to be little disturbance to UK economic growth with the same government remaining in power.
Friday had also seen the release of US Change in Non-Farm Payrolls data which printed below forecasts, yet indicated a rebound in US labour market growth. A strong labour market could encourage the US Federal Reserve to move toward hiking interest rates—an event that would be detrimental for the Canadian Dollar and dampen demand for the nation’s exports from the US. This week will be relatively quiet for the Canadian economy with only a couple of data releases worth noting. Thursday will give an indication of the health of the labour market with the release of the Canadian New Housing Price Index while Friday will follow-up with Existing Home Sales data. Meanwhile, oil prices are also expected to play a part in Canadian Dollar exchange rate movement; crude was recently trading at near five-month highs of over $62 but softened on demand concerns. The downward shift in oil prices came last Thursday and allowed the GBP/CAD currency pair to break through the 1.88 threshold. The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate is currently trending in the region of 1.8722 and is forecast to climb higher on upbeat UK data if it appears the BoE could begin hiking interest rates in the near future.
Heads Up
Summary of major upcoming data releases that we think may move the market.