Foreign Currency Market Update – GBP / CAD Update
At the close of last week the Canadian Dollar declined against all but one of its most traded rivals as investors responded to a disappointing Canadian growth report and subsequently increased Bank of Canada (BOC) interest rate cut speculation.
The Canadian Dollar to US Dollar (CAD/USD) exchange rate came within touching distance of a one-month low while the Pound was able to advance to a high of 1.9124 against the ‘Loonie’ before the weekend. The GBP/CAD currency pair spent the week moving between highs of 1.9175 and lows of 1.8964 as the Pound came under pressure from below-forecast first quarter data and a surprise slide in UK consumer confidence. The Canadian Dollar, meanwhile, experienced movement as a result of fluctuating oil prices, the BOC’s interest rate announcement and Canada’s GDP report.
The Bank of Canada opted to keep the key interest rate on hold at 0.75% on Wednesday, but the inaction failed to offer the ‘Loonie’ much support as the central bank’s accompanying statement was fairly dovish in tone. The BOC hinted at the detrimental impact of a stronger domestic currency amid recovering oil prices, stating; ‘If these developments are sustained, their net effect will need to be assessed as more data become available in the months ahead.’ The odds of the BOC cutting interest rates further were seen to increase on Friday as Canadian growth data provided cause for concern.
Economists had projected that the Canadian economy expanded by 0.2% on the month in March, following negatively revised contraction of -0.1% in February. However, Canadian GDP actually printed at -0.2% on the month, resulting in annualised quarterly GDP of -0.6%, a far lower number than the 0.3% expected and the nation’s first contraction for four years. The less-than-impressive data was largely due to 2014’s plummet in energy prices sparking a sharp drop-off in business investment. As the result may prompt the BOC to consider slashing borrowing costs in the months ahead, the Canadian Dollar entered the weekend with a negative bias.
The GBP/CAD exchange rate was trending in the region of 1.9023 on Monday and was little changed following the publication of a below-forecast Markit Manufacturing PMI for the UK. The Canadian ecostats with the most potential to cause GBP/CAD exchange rate movement this week include the Royal Bank of Canada’s Manufacturing PMI, UK Markit Construction/Services PMI, the Bank of England’s (BoE) Interest Rate decision and Inflation Report, Canada’s Ivey Purchasing Managers Index and Canadian employment figures. Any data which supports the case in favour of the BOC making further adjustments to fiscal policy would weigh on the ‘Loonie’. Conversely, BoE rate hike-supporting data for the UK could drive the GBP/CAD pairing higher over the next five days.
Heads Up
Summary of major upcoming data releases that we think may move the market.