Foreign Currency Market Update – GBP / CAD Update
Odds of a 2015 interest rate hike from the Fed declined further last week, with weak US data reinforcing hopes that the Federal Open Market Committee (FOMC) will hold off tightening policy. As this eased some of the recent pressure on emerging-market and commodity-correlated currencies, the Canadian Dollar was naturally buoyed as market risk sentiment rose. In consequence the GBP/CAD exchange rate slumped to a three-month low of 1.9797.
Data for the UK was generally less-than-impressive, kicked off by a disappointing domestic Services PMI which defied expectations of a minor uptick to post a substantial slump in growth and come in at 53.3. As the service industry is the single largest contributor to the nation’s GDP, this unexpected slowing was not received well and pundits were prompted to move away from the Pound as the impact of wider economic concerns appeared to be more pronounced that previously thought.
Mid-week a downturn in Canadian Building Permits, which fell by -3.7% following a previous gain of 0.7%, put something of a dent in the bullish run of the ‘Loonie’. In response the GBP/CAD exchange rate was pushed to a weekly peak of 2.0024, with Sterling strengthened by the publication of stronger than expected UK Industrial Production data. This minor resurgence was further helped by the revelation that US crude oil inventories had risen by more than forecast, up over 3 million barrels rather than a less substantial 2.2 million. A timely reminder that the global glut remains a persistent threat to the value of the volatile commodity, this pushed the Canadian Dollar down.
However, as analysts continued to forecast that production would fall over the next year it was not long before oil was surging upwards once more. Ultimately the commodity ended the week with its largest weekly gain in since 2009, an encouraging sign of confidence returning to the markets. Global benchmark Brent increased in value to $53.81 per barrel as US crude finally edged back above the $50 mark. This bullish support saw the ‘Loonie’ strengthening in spite of Friday’s less than encouraging Unemployment Rate and Net Change in Employment figures.
After the Bank of England (BoE) voted 8-1 to leave interest rates unchanged, as expected, investors focused on the dovish tone of the accompanying meeting minutes. With the prospect of a nearer-term BoE interest rate increase looking decidedly dimmer, the Pound entered another fresh slump.
Tuesday’s upcoming UK Consumer Price Index data could provide a strong rallying point for the GBP/CAD currency pair, particularly if the core figure lives up to expectations and prints at a slight improvement from 1.0% to 1.1%. Any indications of stronger inflationary pressure within the domestic economy could spur members of the Monetary Policy Committee (MPC) to reconsider their stance on monetary policy, potentially facilitating a sooner start to the cycle of monetary tightening.
The only major Canadian data release of note over the coming days will be Thursday’s Existing Home Sales for September, however, upcoming US figures could stand to influence the ‘Loonie’ to a greater extent. Should oil prove able to sustain its recent rally then the GBP/CAD exchange rate could well remain weighed down by a dominant Canadian Dollar.
Heads Up
Summary of major upcoming data releases that we think may move the market.