Having broken down to a key low of 1.5545 last Tuesday and then convincingly rejected it, GBP CAD will need a fundamental push in order to make a renewed run at this level.
By John Cameron
Foreign Currency Market Update – GBP / CAD Update
The Pound has been down on its luck against the Canadian Dollar for the past month or more. During the same period, the CAD had been well-supported in the currency markets. The traditional Santa Rally saw global equities markets gain significant ground in the four weeks from mid-December. This benefitted the Canadian Dollar more than most currencies due to the Canadian economy’s dependence on the export of commodities. These factors combined to send the GBP CAD exchange rate from above 1.6100 in the week before Christmas all the way down to a 4-month low of 1.5545 on Tuesday 17th January. The pair has improved to trade back above 1.5800 over the last week, as speculators take profit, making 1.5545 a strong level of support in the market.
Last week’s UK economic data releases suggest that the British economy is faltering, adding to the downside pressure on Sterling. Tuesday’s UK CPI Inflation figure for December showed at 4.2%, against November’s counterpart number of 4.8%. With UK prices rising at a decreased rate, there is little reason to think that the Bank of England will raise British interest rates for some time to come. Wednesday’s UK unemployment data showed that British joblessness has reached a seventeen year high of 2.68m. Bank of England Monetary Policy Committee member Adam Posen suggested earlier in the week that British unemployment is set to rise over the next two years, heaping further pressure on the Pound. Meanwhile, the highlight of Canada’s data schedule for last week saw the Bank of Canada maintain interest rates at their current level of 1.00%. Friday’s Canadian inflation data for December came out lower than anticipated at 1.9%, suggesting that Canada’s central bank may also opt to keep rates at their current low level for the remainder of the year.
*Denotes the importance of the data item *** being the highest level.
***Preliminary estimate of Q4 GDP is out on Wednesday (09:30) with markets looking for a 0.1% contraction quarter on quarter, and 0.8% annualised growth
**Bank of England minutes from the last meeting are out at the same time as the GDP data. The market will be looking for any changes in the panel’s interest rate bias and comment on the size of the asset purchase facility (otherwise known as quantitative easing).
No further Canadian data releases of note for the remainder of this week.
Having broken down to a key low of 1.5545 last Tuesday and then convincingly rejected it, GBP CAD will need a fundamental push in order to make a renewed run at this level. The Canadian economy is highly reliant on exports of crude oil, meaning that events in Iran could have a pronounced effect on CAD moving forward. This week’s EU embargo on the Iranian oil industry has elicited angry threats from the Persian state’s rulers, who warned earlier today that they may act to shut down the Strait of Hormuz, through which 20% of the world’s output of crude oil passes, on its way to lucrative Western markets. If Iran’s leaders make good their threat, then Canada’s economy could benefit through increased demand for its key export, strengthening the CAD and seeing the GBP CAD exchange rate make a renewed run at last week’s low.
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