Foreign Currency Market Update – GBP / CAD Update
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was able to advance to a six-year high of 1.9763 last week as Canada’s disappointing growth data upped the odds of the Bank of Canada (BOC) making further adjustments to interest rates. Earlier this year the BOC cut borrowing costs to 0.75% in an attempt to bolster the domestic outlook. While the central bank has since asserted that it intends to pursue a policy of stable interest rates for the foreseeable future, recent ecostats and a darkening of the global economic outlook could prompt the central bank to cut further before the end of the year.
The latest Canadian GDP report certainly added to the argument in favour of lower borrowing costs, with the nation’s economy unexpectedly contracting for a fourth consecutive month in April. Growth of 0.1% had been predicted but a figure of -0.1% was recorded. While the Canadian Dollar later clawed back losses in response to dovish Bank of England (BoE) interest rate remarks and subpar UK manufacturing figures, the pairing returned to trending in the region of 1.97 this week.
The Canadian Dollar broadly softened as concerns relating to Greece, Iran and China saw investors abandon higher-risk assets and the price of oil drop. On Monday the value of black gold fell by around 8%, the largest daily slide for over three months. Both oil prices and the ‘Loonie’ stabilised on Tuesday however, with GBP/CAD falling to 1.9630 in spite of the UK’s GDP figure for the three months through June coming in at 0.7%. On Wednesday the British Retail Consortium’s Shop Price Index and Canada’s Building Permits report will be of some interest, although any volatility in the currency market is more likely to be down to the publication of minutes from the latest Federal Open Market Committee (FOMC) meeting.
Thursday’s Bank of England (BoE) interest rate announcement is unlikely to have much of an impact on the Pound, given that the central bank isn’t expected to make any policy alterations at this juncture, but the direction taken by the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate may be affected by Canada’s Housing Starts and New Housing Price data. We can expect a final flurry of GBP/CAD volatility on Friday as the UK’s trade balance and construction output numbers are released and Canada’s employment report is published. Canada is believed to have lost -10,000 positions in June, which would take the unemployment rate from 6.8% to 6.9%. A worse result than this would up the odds of the BOC intervening in the months ahead and could see the Canadian Dollar fall to new lows against the Pound.
On Tuesday the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was trending in the region of 1.9700.
Heads Up
Summary of major upcoming data releases that we think may move the market.