Foreign Currency Market Update – GBP / CAD Update
The last week has seen the value of oil continue to retreat amidst a number of fresh concerns over the persistence of the current global supply glut. In its latest market forecast the International Energy Agency (IEA) suggested that crude was unlikely to return to values in the region of $80 until 2020, weighed down by a sizable gap between excessive supply and diminishing demand. Speculation also arose that the Organisation of the Petroleum Exporting Countries (OPEC) could well be opting to raise the cap on production by member states in December, exacerbating the bearishness of oil.
US crude stockpiles proved equally resilient, increasing by 4.2 million barrels on the week, as pumps resolutely failed to slow in spite of sharply weakening global prices. Thursday saw the issue compounded further as OPEC released a report revealing that despite demand having remained static in the last year the world’s crude inventories were over 210 million barrels larger than the five-year average. Market benchmark Brent crude was naturally weighed down by this persistently negative outlook, sliding below $44.50 ahead of the weekend.
Although UK data was rather limited, the Pound was substantially buoyed on Wednesday as a result of an unexpected drop in the ILO Unemployment Rate. Falling from 5.4% to 5.3% in the three months to September, this counteracted a disappointing uptick in Jobless Claims Change. Bank of England (BoE) Governor Mark Carney helped to shore up demand for Sterling further, commenting that the domestic economy was strong enough to weather more negative global conditions. Many traders took this as a sign that the BoE could be contemplating a nearer-term interest rate rise, spurring the GBP/CAD exchange rate to a daily peak of 2.0266.
Both the Canadian Housing Starts and New Housing Price Index offered little support to the ailing ‘Loonie’, indicating that the domestic housing market remains in a relatively weaker state. Market risk aversion has also continued to weigh on the Canadian Dollar, with a strong US Dollar and the increased odds of an imminent interest rate rise from the Federal Open Market Committee (FOMC) giving traders little incentive to buy into the commodity-correlated currency.
However, as fresh geopolitical tensions have helped to set the price of oil trending higher once again on Monday, in the wake of a new round of bombings affecting crude supplies in the Middle East, the ‘Loonie’ has strengthened. The GBP/CAD exchange rate has also been compelled to retreat after a less-than-enthusiastic reception to an increase in the UK’s Rightmove House Price Index, which has merely fuelled fears of a growing housing bubble.
With the October Consumer Price Index readings due from both the UK and Canada over the coming days the GBP/CAD exchange rate is likely to see further volatility, with any improvements in inflationary pressure sure to drive up demand for either the Pound or Canadian Dollar.
Heads Up
Summary of major upcoming data releases that we think may move the market.