The break higher for the pair would surely have had more momentum had it not been for a Sterling negative set of Bank of England minutes, released on Wednesday, which dropped heavy hints that there would be more Quantitative Easing for the UK in the near-term.
Foreign Currency Market Update – GBP / CAD Update
Oil prices took a tumble during the first half of last week’s trading session and the Canadian Dollar followed suit, thanks to Canada’s ongoing dependence on the proceeds of exports of its black gold. A barrel of Brent crude was changing hands at close to US$117 when trading recommenced on Sunday night following the weekend close. By Wednesday evening, the same barrel of crude was costing US107 on the world’s wholesale markets – a drop of almost 10% in the space of just over three days.
More poor manufacturing data from China sent analysts scrambling to downwardly revise their short-to-medium term global growth forecasts, causing a generalised move out of oil and disappointing Japanese trade numbers, published in the middle part of last week, added to the gloomy mood amongst investors. However the rapid downward shift in crude oil prices may not have been totally attributable to fundamental developments; world oil markets are notoriously imperfect and market whispers suggest that one or more major oil producers may have dumped reserves onto the market last week in an attempt to drive down input costs. Either way, lower oil prices is bad news for the Canadian Dollar – Thursday’s session saw the GBP CAD exchange rate break to its highest level in two months at 1.5889. The break higher for the pair would surely have had more momentum had it not been for a Sterling negative set of Bank of England minutes, released on Wednesday, which dropped heavy hints that there would be more Quantitative Easing for the UK in the near-term.
The GBP CAD rate has registered further gains in the early part of this week’s session, following Friday afternoon’s lower than anticipated Canadian CPI inflation data, which caused analysts to downgrade their expectations for a rate hike by the Bank of Canada before the New Year. Weekend comments from Spanish Prime Minister Mariano Rajoy, which appeared to suggest that a messy debt default might be preferable to the imposition of decimating austerity measures as an option for his country, have also served to take the edge off investors’ appetite for risk. The downbeat mood in the markets has propelled the GBP CAD exchange rate to 1.5919 this morning – a new 11-week high. If the current upward momentum continues for the pair, then mid-June’s high of 1.6084 will become a target. However, if Friday’s Canadian GDP Growth numbers for July disappoint, then GBP CAD could rapidly track back down to its most recent low of 1.5565 which it last dipped to on 11th September.
Summary of major upcoming data releases that we think may move the market.
- The Canadian Dollar was strongly supported against the Pound during the early part of last week’s trading session
- The Canadian Dollar came under selling pressure in the early part of the week
- The Pound had registered gains against the CAD in six of the seven sessions leading up to the release of last Friday afternoon’s Canadian employment figures
- The Canadian dollar strengthened in the early part of last week
- GBP AUD has spent the early part of this week firmly lodged in the 1.5400s