Foreign Currency Market Update – GBP / CAD Update
The Pound Sterling to Canadian Dollar exchange rate has seen volatile trading in recent days thanks to poor UK data and continued fears over the global price of oil.
In the last week GBP/CAD has fluctuated between lows of 2.0161 and highs of 2.0354.
Bank of England (BoE) Deputy Governor Ben Broadbent gave a surprisingly hawkish speech on the 18th in which he suggested the media often misinterpreted BoE comments regarding inflation. The usually dovish Broadbent, who voted with seven other policymakers to hold interest rates steady at the last Monetary Policy Committee (MPC) meeting, claimed there were other objectives than inflation to consider. His words, combined with a slight rise in the UK Core Consumer Price Index to 1.1% on Monday, saw the CAD/GBP exchange rate pushed down to a low of 0.4915.
The ‘Loonie’ received a boost on Friday with the release of domestic data, despite its mixed nature. Month-on-Month (MoM) Canadian Retail Sales decreased by -0.5%, instead of slowing to a 0.1% growth rate. However the monthly Consumer Price Index rose as forecast from -0.2% to 0.1%, while annual core CPI remained at 2.1% rather than recording the marginal -0.1% fall predicted. This helped the Canadian Dollar to climb out of a slump caused by oil prices falling to the lowest levels since the beginning of September.
A shock deficit in UK public finances was revealed on Friday and the CAD/GBP exchange rate advanced as concerns grew over the likelihood that Chancellor George Osbourne would need to introduce harsh budget cuts in the Autumn Statement next. The Canadian Dollar was trending near a two-week high at the beginning of today’s London session, with CAD/GBP around 0.4959.
The Canadian Dollar has been buoyed today by a pledge from Saudi Arabia to work towards stability in oil prices. Saudi Arabia had previously focussed on defending its market share, hoping that by driving prices down they could force US producers out of business. Saudi Arabia has more than US$600 billion in its treasury, so it is well equipped to weather the storm caused by low oil prices, which have dropped 60% since June 2014.
Not all investors are confident that Saudi Arabia’s words will translate into action. This doubt, combined with the fact that global oil inventories are still well-stocked, has prevented the ‘Loonie’ from making significant gains. The US alone had nearly 490 million barrels in its inventories last week. Such levels have not been seen at this time of year during the past 80 years.
BoE Governor Mark Carney, along with other members of the Monetary Policy Committee, have been testifying to lawmakers today regarding the November 5th Inflation Report. As their comments hit markets, the GBP/CAD exchange rate could fall further, although positive UK Consumer Confidence Survey and Gross Domestic Product results could lend Sterling some strength before the weekend. There is no important data due out for Canada this week, so it is likely that commodity prices and the strength of the US Dollar (USD) will play the largest roles in determining ‘Loonie’ movement.
Heads Up
Summary of major upcoming data releases that we think may move the market.