Foreign Currency Market Update – GBP / CAD Update
Over the past few weeks the Canadian Dollar has struggled against the majority of its currency peers against the backdrop of weak crude oil prices and mounting confidence with regards to the likelihood of a Federal Reserve benchmark rate hike. Should the Fed hike rates on Wednesday, as has been predicted by over 70% of economists surveyed, the ‘Loonie’ (CAD) is likely to tank amid widening policy divergence and less profitable cross-border trade.
After OPEC announced recently that the cap on oil production has been lifted the price of crude softened. Adding to the downtrend was an announcement from Iranian oil producers that they will soon be adding a considerable amount of black-gold to the global supply after sanctions against the country were lifted. With the global supply glut swelling, commodity-correlated assets such as the Canadian Dollar have endured dampened demand. The crude-sensitive ‘Loonie’ has been particularly negatively affected by the drop in oil process which fell below $35 a barrel to hit a fresh 11-year low during Monday’s European session.
The Canadian Dollar’s performance against the Pound has been fairly muted however when you consider how much the currency has moved against rivals like the US Dollar. This is because the British asset has seen little by way of marked movement now that traders have digested the very distinct possibility that the Bank of England (BoE) will look to keep monetary policy highly accommodative until 2017. Traders are now shifting focus to the 2017 EU referendum, which could have significant economic ramifications should Britain vote to leave.
During Tuesday’s European session the GBP/CAD exchange rate was trending narrowly despite a fractional rise in oil prices. Many analysts predict that oil prices have not bottomed-out just yet with the global glut continuing to swell. Weak crude futures is partly attributable to the lack of demand for the Canadian Dollar on Tuesday, but also the prospect of tighter Fed policy on Wednesday is having a detrimental impact on ‘Loonie’ demand. The absence of Canadian Dollar volatility can also be linked to mixed-results from domestic data on Tuesday. November’s monthly Existing Home Sales equalled the previous figure of 1.8%, but October’s monthly Manufacturing Shipments contracted beyond expectations by -1.1%.
With the exception of the Federal Open Market Committee (FOMC) interest rate decision on Wednesday, which is likely to cause significant market volatility, Canadian Dollar movement will be most active on Friday when Canadian inflation data is due for publication. In terms of the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate, there is likely to be volatility in response to Wednesday’s British labour market data. Of particular significance will be Average Weekly Earnings given that many Bank of England (BoE) policymakers have highlighted the slow pace of wage growth as a significant reason to avoid hiking the benchmark interest rate.
The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was trending within the range of 2.0702 to 2.0832 during Tuesday’s European session.
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