Foreign Currency Market Update – GBP / CAD Update
While the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate fell last week following the Bank of Canada’s (BOC) Interest Rate freeze, the ‘Loonie’ reversed gains before the weekend.
Last week, the Pound was initially bolstered by a number of supportive economic occurrences. These included the results of Tuesday’s Bank of England (BoE) Stress Test, which saw all of the seven major UK banking institutions pass, although both RBS and Standard Chartered were flagged up as the two weakest of the organisations tested on their coping strategies when faced with recession-types scenarios. In addition to this, the Canadian September GDP results were also supportive of a Sterling rise against its competitor, as they saw a flat 0% on the year and a -0.5% flop on the month.
On Wednesday, however, the Pound’s luck ran out. The morning’s Markit/CIPS Construction PMI for November fell from 58.8 to 55.3 instead of merely declining to 58.5. More injuriously, investor interest in the Canadian Dollar leapt up as the BOC Interest Rate Decision loomed and the Pound crashed against the ‘Loonie’ when it was announced that the Canadian interest rate would remain at 0.50%.
Thursday saw a return to form for Sterling – the November Composite and Services PMIs both exceeded expectations in the morning and a sudden dip in the price of crude oil per barrel also added to the suddenly increased appeal of the Pound against the Canadian Dollar. Friday saw the ‘Loonie’ come under strain as Canadian data revealed an unexpected increase in the domestic unemployment rate for November, with the rise from 7.0% to 7.1% sealing Sterling’s victory into the weekend.
The Pound has been faring well against the Canadian Dollar so far today, reaching 2.0260; the price of crude oil per barrel has been historically unsupportive for the ‘Loonie’, having dropped to $39.40, the worst price in the year so far.
This week, Pound Sterling/Canadian Dollar exchange rate movement may occur as a result of tomorrow’s Canadian November Housing Starts and October Building Permits, the UK October annual Industrial and Manufacturing Production results out on the same day and the BoE Interest Rate Decision, due on Thursday.
At the time of writing, forecasts were positive for both of tomorrow’s Canadian economic releases, with respective rises of 200k and 3.2% being on the cards. Predictions have been less consistent for the impending UK releases, with Industrial Production expected to rise from 1.1% to 1.2% and Manufacturing Production forecast to improve from -0.6% to 0%.
Looking further ahead, Thursday’s BoE’s Interest Rate Decision has the potential to spark GBP/CAD volatility. Investors are not expecting the BoE to change the current benchmark rate of 0.50%. Instead, the minutes of the decision are likely to be the focal point of both economists and investors, who will be keenly scouring the notes for any sign of when the UK interest rate could be raised in 2016.
Heads Up
Summary of major upcoming data releases that we think may move the market.