Foreign Currency Market Update – GBP / CAD Update
Global oil worries continued to weigh on the ‘Loonie’ over the last week amid suggestions that the current state of oversupply will not begin to ease in the near future. As US stockpiles had been revealed to have increased far beyond estimates, by 4.6 million barrels, Brent crude dipped below the $48 mark once again. Nevertheless, while this saw the GBP/CAD exchange rate climb to a weekly high of 2.0384 it was not long before the Canadian Dollar began to experience a resurgence in demand, spurred by the nation’s latest Gross Domestic Product released on Wednesday.
Bettering estimates, Canadian GDP rose to 0.8% in July to signal that the local economy may be recovering some of its steam in spite of persistent global slowdown concerns. Coming amid concerns that the Federal Open Market Committee (FOMC) might begin imminently raising interest rates this helped to shore up the ‘Loonie’, easing worries that the Bank of Canada (BOC) might adopt a divergent policy of fresh cuts. Although the following day saw a greater contraction than expected on the local Manufacturing PMI, which slipped to 48.6, the GBP/CAD conversion rate remained on a general downtrend.
After days of heightened speculation over the prospect of an October Fed interest rate hike, Friday’s US Change in Non-Farm Payrolls fell substantially short of forecasts. Showing that just 142,000 new jobs were created in the domestic economy over the last month, with the corresponding August figure also being revised down, this data all but ended hopes for a 2015 rate adjustment. However, while the pressure of a strengthened ‘Greenback’ was lifted from the ‘Loonie’ the generally grimmer picture this painted of the global economy led to a rise in risk aversion. As such the GBP/CAD pairing saw a rally ahead of the weekend, albeit a limited one.
Beginning to climb out of its latest slump, the value of oil was on the rise early on Monday thanks to the news that Russia has called for a meeting with other producers including those from the Organisation of Petroleum Exporting Countries (OPEC) and those not affiliated with the bloc. Speculation that this could indicate a willingness to cut production, contrary to previous policy from Russia, has helped to shore up the commodity to push Brent crude closer to the $49 mark. Combined with a disappointing UK Services PMI, which showed that output in the nation’s major economic sector slowed unexpectedly last month, this pushed the GBP/CAD exchange rate to a fresh two-month low of 1.9901.
Over the coming days Canadian housing data, including Building Permits and Housing Starts figures, could help bolster the ‘Loonie’ further should evidence emerge of continued improvement within the domestic economy. Friday’s Unemployment Rate and Net Change in Employment for September are also likely to provoke volatility for the GBP/CAD currency pair, particularly if the reports should equal forecasts for lowered unemployment.
Heads Up
Summary of major upcoming data releases that we think may move the market.