The GBP/CAD exchange rate has trended between lows of 2.0450 and highs of 2.0879 over the last week.
Investor confidence in the Chinese economy has continued to plummet this week, with stock markets around the world feeling the impact. Oil has fared poorly as well, causing some uncomfortable questions regarding the health of the Canadian economy.
Meanwhile, Pound Sterling was hit by a string of bad data releases from the UK, with Retail Sales, Industrial Production and Manufacturing Production all failing to meet forecasts or falling unexpectedly. Despite the busy Christmas period, Retail Sales grew just 0.1% year-on-year (YoY). The GBP/CAD exchange rate was buoyed again slightly by the NEISR GDP forecast, which remained at 0.6% despite the latest developments.
The price of oil continues to cast shadows over the Canadian economy. This week Brent crude, the international benchmark for oil prices, dropped as low as $27.67 per barrel and has remained below the key $30 per barrel mark since the 14th. Western Canada Select oil is currently at US$21.97 per barrel.
Thursday saw the latest decision on interest rates and asset purchases by the Bank of England (BoE). Policymakers voted to leave interest rates on hold for the 82nd consecutive month, exactly as markets had predicted. The minutes of the meeting were carefully scrutinised and the fact that Ian McCafferty had once again voted in favour of a 0.25% hike despite the latest global developments helped prevent investor confidence falling too far.
The GBP/CAD exchange rate is trading negatively today, despite the UK Consumer Price Index performing better than expected. While non-core inflation rose to 0.2% as expected, the Core Price Index increased 1.4% YoY, beating predictions of a 1.2% rise. Consumer prices saw a monthly increase of 0.1% in December, despite no growth being forecast. However, drilling further into the data shows that a large increase in transportation costs has caused the headline figure to rise, despite almost all the other areas declining.
The Canadian Dollar is also strengthening thanks to signals from the Canadian government suggesting Prime Minister Justin Trudeau is prepared to increase public spending in order to shore up the economy. He has recently given his Finance Minister Bill Morneau free reign ahead of his first ever budget statement. Many economists believe it will be down to government spending, not measures taken by the Bank of Canada (BOC) to drive Canada’s recovery.
The BOC will make its next decision on interest rates tomorrow. While many believe the current economic climate necessitates another rate cut, others believe doing so would undermine confidence in the ‘Loonie’ to catastrophic effect. The UK will also see employment and wage figures released tomorrow. Average Weekly Earnings are expected to have grown at a slower level than previously, which will come as more bad news for the prospect of UK interest rate hikes.
Canadian CPI is due on Friday and may provide a final flurry of CAD movement before the weekend.
Heads Up
Summary of major upcoming data releases that we think may move the market.