Foreign Currency Market Update – GBP / CAD Update
Over the past week the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate trended within the range of 2.0195 to 2.0559. Last week’s economic docket was comparatively sparse in terms of British data causing relatively subdued Sterling trade. A general depreciation was caused by dovish speeches from various Bank of England (BoE) officials, heightening speculation that the British central bank would look to delay a benchmark rate increase into the middle of 2016. Conversely, speculation that the Bank of Canada (BOC) will look to loosen policy weighed on demand for the ‘Loonie’ (CAD). With oil prices weak as soft data out of China highlights the lack of demand from the world’s second-largest economy, the Canadian Dollar softened versus most of its major peers.
The International Monetary Fund (IMF) warned of the danger of a widespread global economic slowdown during Monday’s European session, sending the Pound Sterling to Canadian Dollar exchange rate Northwards by around 0.3%. A report from economic forecasters Ernst and Young Item Club which stated that concerns regarding secular stagnation in the UK were ‘misplaced’ added further fuel to this move. The IMF asserted that a lack of investment by governments and businesses around the world has provided the catalyst for weak global growth, but with British investment in business hitting its highest level since 2000 at 11% this year, the UK has bucked this trend. With an absence of UK economic data to provoke volatility in the near-term, many analysts forecast that the Pound Sterling will hold its recent gains versus its currency rivals.
The Pound Sterling to Canadian Dollar conversion rate was trading in the region of 2.0269 during Monday’s European session. As we draw ever closer to the Canadian general election, political uncertainty is weighing heavily on demand for the ‘Loonie’. The three main parties hold around 30% of the vote each, in accordance with the latest polls, indicating that the result will be too close to call. Trader uncertainty, especially with regards to the potential for significant changes in policy, is a massive hindrance to confidence when it comes to investment. In addition to the general election causing the Canadian Dollar to cool, low oil prices continue to hamper ‘Loonie’ gains. After data out of China showed industrial profits contracted by -8.8%, oil futures tumbled amid speculation of long-term oversupply as demand cools from the Far East nation.
Looking ahead, there are several influential domestic data publications with the potential to provoke GBP/CAD volatility. In terms of British data; Consumer Confidence, second-quarter Gross Domestic Product, the Manufacturing PMI and the Construction PMI have the potential to provoke changes for the UK asset. Although Canadian economic data is somewhat thin-on-the-ground over the coming week, Wednesday’s Gross Domestic Product will be particularly significant. A bad result is likely to pressure the BOC into easing monetary policy. The Canadian Manufacturing PMI will also be of interest to those invested in the ‘Loonie’.
Heads Up
Summary of major upcoming data releases that we think may move the market.