Foreign Currency Market Update – GBP / CAD Update
The Pound Sterling to Canadian Dollar exchange rate was trending in the region of 1.88 on Monday after falling from the 1.90 threshold breached toward the close of last week. The Canadian Dollar was offered little support on Thursday when the Canadian New Housing Price Index softened from 1.4% to 1.2% on the year in March, with the month falling flat at 0.0%.
However, Friday’s data showed that Canadian Existing Home Sales recorded 2.3% growth in April after the previous month’s 4.1% expansion. The surge in sales saw the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate soften to below 1.90 on the news, despite an upbeat UK Construction Output ecostat emerging earlier in the session.
After a rather quiet stint of domestic data releases last week, coming days should see the GBP/CAD currency pair experience some more significant movement. Investors in the Canadian Dollar will be looking ahead to the highly influential Canadian and US Consumer Price Indexes out on Friday. Global inflation has declined with falling oil prices in recent months and any tumble in consumer price growth tends to bode badly for the nation’s respective currency. If the US Federal Reserve holds off from hiking interest rate due to a dampened inflation figure, the Canadian Dollar could rally.
The Pound will also trade under the pressure of inflation data on Tuesday, with the UK’s own Consumer Price Index due for release. The core measure is forecast to stagnate at 1.0% in April, while the non-core ecostat is forecast to remain at 0.0%, verging on the precipice of deflation. However, any gain in consumer prices could cause the GBP/CAD exchange rate to jump. Additionally, the Pound Sterling could enjoy some support from Wednesday’s Bank of England (BoE) meeting minutes if they show a divergence among policymakers on the topic of interest rate hikes.
Another factor which is expected to hang over the Canadian Dollar in coming months is the prospect of a further Bank of Canada interest rate cut. January saw the BOC announce a 25 basis point downward adjustment to borrowing costs on account of lower oil prices. Oil prices have been advancing due to tensions in the Middle East, but if the Organisation of Petroleum Exporting Countries (OPEC) fails to cut production, it is unlikely crude will rally significantly. However, the Canadian Dollar has been trending higher against a host of other majors despite the rate cut and the BOC may be inclined to reduce rates further in order to encourage economic growth. Tuesday will see Bank of Canada Governor Stephen Poloz speak in Charlottetown and any dovish comments could see the ‘Loonie’ soften against other majors. The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate is trending in the region of 1.8876.
Heads Up
Summary of major upcoming data releases that we think may move the market.