Foreign Currency Market Update – GBP / CAD Update
Over the past week the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was trending within the range of 2.0139 to 2.0567 – an almost seven-year high.
In response to tanking crude oil prices, the Canadian Dollar declined significantly against its currency rivals. The ‘Loonie’ (CAD) was already trending in a weak position following the Bank of Canada’s (BOC) most recent interest rate decision in which policymakers opted to cut the overnight cash rate from 0.75% to 0.5%. Even as oil prices began to stabilise on Tuesday of this week, the Canadian Dollar remained resolutely bearish versus its currency rivals. This was largely the result of poor domestic factory output, as evidenced by the RBC Manufacturing PMI falling from 51.3 to 50.8; taking the gauge dangerously close to the 50 mark separating growth from contraction.
Conversely, the Pound spent much of last week rallying versus many of its major peers. Demand for the Pound increased as futures traders brought forward bets as to the timing of a Bank of England (BoE) interest rate increase. On Tuesday of this week the Pound advanced to a near 7-year high against the Canadian Dollar after the British government sold a chunk of its shares in the Royal Bank of Scotland (RBS). Although the shares were sold at a fraction of the price at which they were bought, the sale could attract foreign investment which will ultimately prove bullish for the Pound.
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was trending within a narrow range in the early stages of Wednesday’s European session.
With crude prices edging higher after China’s equity markets stabilised, the Canadian Dollar recovered a little ground on Wednesday. Crude futures are looking bleak, however, amid ongoing concerns regarding China’s economic slowdown. In addition, the prospect of a bullish US Dollar when the Federal Reserve hikes the cash rate will see crude oil prices under pressure. Later today, Canadian International Merchandise Trade data is due for release. However, the result is unlikely to have a significant impact on volatility with trader focus set firmly on crude prices.
As traders await British services output data, the Pound strengthened against its currency competitors. The appreciation can be linked to speculation of a robust services print; a positive for Sterling given that the services sector accounts for around 70% of British gross domestic product. The Composite PMI may also provoke Sterling volatility given the less-than-ideal Construction PMI published on Tuesday.
Looking ahead, there are several influential economic publications pertaining to both the UK and Canada due out over the coming days which will have a significant impact on the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate. From the Canadian perspective, Friday will be of most importance with both Unemployment Rate and Net Change in Employment reports due for publication. Friday’s Building Permits and the Ivey Purchasing Managers Index may also be of interest to those invested in the ‘Loonie’.
In terms of British data, Thursday will be crucial. The Bank of England (BoE) Monetary Policy Committee (MPC) interest rate decision is unlikely to provoke volatility in and of itself, given that most analysts predict the MPC will hold the cash rate at this juncture, but there is the potential for significant Sterling changes in response to the BoE’s Inflation Report. With inflation hovering around the 0% mark, the BoE’s outlook and confidence, or lack thereof, that inflation will return to target levels will have a marked impact on the British asset.
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was trending within the range of 2.0486 to 2.0567 during the early stages of Wednesday’s European session.
Heads Up
Summary of major upcoming data releases that we think may move the market.