Foreign Currency Market Update – GBP / CAD Update
Although the UK PMIs had been a little mixed, the Pound maintained a bullish run against the struggling ‘Loonie’ for the first half of last week. The UK manufacturing sector was the only one to record improved growth by coming in at 51.9, as both Construction and Services clocked in lower, at 57.1 and 57.4 respectively. All three, and the Composite PMI, still remained above the neutral baseline of 50 to stay in a state of relative growth, however, providing some encouragement to investors. Ahead of the Bank of England (BoE) Rate Decision and accompanying minutes and inflation reports the Pound had continued to take advantage of a soft ‘Loonie’ to push the GBP/CAD exchange rate to a fresh seven-year high of 2.0613.
‘Super Thursday’ and the BoE triple data release ultimately did more damage than good to Sterling though. As the Monetary Policy Committee (MPC) voted 8-1 in favour of maintaining an interest rate of 0.5% this month the chances of a rate hike before the end of the year visibly dwindled. Pundits had been expecting at least two or perhaps even three dissenters in this session, leading to traders abandoning the currency in a move that saw Sterling dramatically fall across the board. The GBP/CAD pairing was no exception to this abrupt decline, shedding value to hit a significant slump of 2.0396.
Times have remained less than ideal for the Canadian Dollar, however, as the global commodity slowdown continues apace, with the last week having seen crude oil fall below $50 a barrel. The news was not all bad for the ‘Loonie’ though, as Canada’s Unemployment Rate and Employment Change did not produce particularly negative results. Unemployment remained stable at 6.8%, while the number of those in employment increased by 6,600, beating the forecast 5,000 gain. In response the GBP/CAD exchange rate dropped to a weekly low of 2.0225.
Any particularly major movement in the paring is unlikely to occur until later in the week, when a number of data releases are due out for both the UK and Canada. Wednesday will give us the UK Unemployment Rate and Employment Change figures, which will have the potential to boost the Pound out of the lingering shadow of the BoE disappointment. Construction Output on Friday could also salvage Sterling from its current downtrend should expectations for increased output be met.
The only particularly significant Canadian figures this week will be the Housing Starts for July and the year-on-year New Housing Price Index. Upturns in the housing market would undoubtedly bode well for the economy in general, although whether strong numbers here could adequately counteract the effect of falling oil prices on the commodity currency remains a question for debate. Canada’s current state of recession is also potentially deterring traders from returning to the ‘Loonie’.
At time of writing the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate is trending narrowly in the range of 2.0359.
Heads Up
Summary of major upcoming data releases that we think may move the market.