Foreign Currency Market Update – GBP / CAD Update
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate began last week trending in the region of 1.9081 and spent the next five days fluctuating in response to oil price shifts, disappointing UK Manufacturing/Services PMIs and a notable improvement in Canada’s Ivey Purchasing Managers Index for May. Although last week’s UK data pushed back Bank of England (BoE) interest rate hike expectations, and saw the Pound struggle against a number of its currency counterparts, Sterling did claw back declines before the weekend in response to the BoE Inflation Expectation report. Consumers now believe that inflation will rise to 2.2% within the year, an improvement on the previous estimate of 1.9%. BoE Governor Mark Carney also inferred that it is possible interest rates will be higher by this time next year if consumer prices do accelerate in line with expectations.
The GBP/CAD currency pair lost -170 pips on Friday as investors responded to a stronger-than-anticipated Canadian payrolls report. As a 10,000 jobs gain in May had been anticipated, the actual 58,900 increase was well received. Although the Canadian unemployment rate held at 6.8%, the data was seen to reduce the odds of the Bank of Canada (BOC) cutting interest rates in the near future. However, after slumping to a low of 1.8945, the Pound trimmed declines against the ‘Loonie’ as the OPEC announced it would be leaving oil production unchanged – a decision which softened the price of Canada’s key commodity.
Oil prices were further strained on Monday thanks to China’s latest trade numbers. The nation’s trade surplus swelled due to a sharp -17.6% year-on-year drop in imports in May, with reduced oil demand accounting for some of this decline. A figure of -10.0% had been projected. Chinese exports were down -2.5% on the year, less than the -4.4% annual slide anticipated.
Canadian ecostats are sparse this week, with the only data worth noting being Monday’s Housing Starts and Building Permits numbers and Thursday’s New Housing Price Index. Housing starts are forecast to come in at 185.0K in May, up from 183.1K in April. However, building permits are expected to fall by -5.0% on the month in April following March’s 11.6% gain. The Canadian Dollar’s performance over the next five days will also depend on crude oil prices, data out of the US (including the fairly influential Advance Retail Sales report) and Chinese reports.
The GBP/CAD currency pair may also fluctuate in response to this week’s more high-profile UK figures, including tomorrow’s Trade Balance numbers, Wednesday’s Manufacturing/Industrial Production data and NIESR GDP estimate for May and Friday’s Construction Output report. In the months ahead UK rate hike bets will be the driving force behind Sterling fluctuations, and any figures which support the argument in favour of interest rates being revised sooner than currently projected would be Pound supportive.
Heads Up
Summary of major upcoming data releases that we think may move the market.