The major risk event of the week followed shortly after the BoE decision, when the European Central Bank’s President Mario Draghi revealed, during his post policy announcement press conference, that the ECB would be stepping into the bond markets to purchase the government gilts of debt-distressed eurozone nations.
Foreign Currency Market Update – GBP / CAD Update
The Bank of Canada surprised no-one a week ago today by electing to maintain its key lending rate at 1.00% for the sixteenth month on the trot. However, the Canadian Dollar suffered in the aftermath of the decision due to the BoC’s accompanying commentary, which observed that, ‘some modest withdrawal of the present considerable monetary policy stimulus may become appropriate’. The use of the adjective ‘modest’ in the above rhetoric was taken by analysts as a coded signal that a rate hike for Canada may be a long way from the ‘done deal’ which many investors had previously considered it to be. The shift out of CAD-denominated assets which followed propelled the GBP CAD exchange rate to 1.5796, its highest level since the final day of July.
However, the good times did not last long for Canadian Dollar buyers; GBP CAD had retraced back into the low 1.5600s by Friday afternoon thanks to the deeds and pre-empted actions of three of the world’s major central banks. The Bank of England led the way at midday on Thursday. Although the Bank’s nine man monetary policy committee resisted the temptation to alter the UK’s monetary policy, their supplementary commentary which stated that an extension to Britain’s asset purchase scheme remained ‘under review’, hung heavily over the Pound for the remainder of the week.
The major risk event of the week followed shortly after the BoE decision, when the European Central Bank’s President Mario Draghi revealed, during his post policy announcement press conference, that the ECB would be stepping into the bond markets to purchase the government gilts of debt-distressed eurozone nations. The news saw the commodity-driven Canadian Dollar enjoy a bout of strong support which was accentuated on Friday afternoon when August’s US Non-Farm Payrolls showed that significantly less jobs had been generated in the giant US economy last month than had been expected. Ordinarily, this would hurt the CAD, but these are not ordinary times; investors took the weak American labour market numbers as a sign that the US Federal Reserve was more likely to ramp up its printing presses once again and indulge in more Quantitative Easing. This sent stock markets higher and triggered further support for the Canadian Dollar.
The downward shift for GBP CAD since the middle part of last week has continued into this week, taking the pair into the mid-1.55s during today’s session. If the move lower gains further momentum, perhaps due to a weak showing for tomorrow’s UK Jobless Claims data for August, then a run at mid-March’s 12-month low of 1.5464 looks possible.
Summary of major upcoming data releases that we think may move the market.
- The Canadian Dollar came under selling pressure in the early part of the week
- The Canadian Dollar was strongly supported against the Pound during the early part of last week’s trading session
- The AUD came under further selling pressure in the middle part of last week
- The middle part of last week’s session saw the Pound receive a boost
- Weaker than anticipated New Zealand labour market figures, released in the middle part of last week’s session, caused pronounced selling pressure on the Kiwi Dollar.