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Foreign Currency Market Update – GBP / CAD Update

The Canadian Dollar struggled to re-assert itself in the currency markets following the release of dismal Q1 GDP data at the start of last week’s session. Friday afternoon’s US Non-Farm Payrolls figures for April banged the final nail into the Canadian currency’s coffin for the week, when they revealed that America’s vast economy had only managed to create 115,000 new jobs last month. This was far below analysts’ expectations of an increase of 160,000, spelling bad news for Canada’s economy which is heavily dependent on exports of raw materials to the US.

The weak US jobs data caused the GBP CAD exchange rate to breach the 1.6000 level once again. The pair ended the week at 1.6084, within a whisker of its highest level since Christmas week, having briefly traded below 1.5900 during Thursday’s session, following the release of tame UK house price numbers.

The Sterling Canadian Dollar chart has shown the classic features of an ‘uptrend’ since the middle part of March, when the pair dropped to its near-term low of 1.5464. Since then, the chart has been snaking upwards, with the highs getting higher and subsequent lows getting higher as well. This week’s session has seen GBP CAD break to a new 18-week high, with the Canadian currency coming under renewed selling pressure thanks to question marks over the fiscal position of another of its major trading partners – the eurozone. An indecisive result in Greece’s general election means that a power-vacuum is likely to form in the debt-addled Hellenic state. Even more worryingly, almost seven out of ten of the electorate who cast a vote in the election, chose to support ‘anti-bailout’ parties. In the cradle of democracy, this must count for something – if it eventually leads to Greece reneging on the terms of its EU/IMF/ECB bailout funding, then a catastrophic Greek default would ensue. This would hit the Canadian economy and the Canadian Dollar harder than most others, due to their dependence on the future prospects of the global economy. Such a scenario would be likely to precipitate a renewed run at its 27-month high 1.6475 for GBP CAD. Alternatively, with the UK economy having sunk into a double dip recession, further weak UK economic releases could send the pair back down towards its key interim floor at 1.5464 in the near-term.

Heads Up

Summary of major upcoming data releases that we think may move the market.

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3. The Canadian Dollar put in a tame performance in the currency markets
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Tags: Canadian Dollar, Currency Forecast, Currency News, Currency Predictions, Currency Rates, Foreign Exchange News, Foreign Exchange Rate, Pound, Sterling
Category GBP-CAD Update

Sterling / Euro and US Dollar exchange rates

The Pound declined through 1.61 against the U.S Dollar yesterday, after a report from the Confederation of British Industry showed that UK retail sales slumped in April. The declining nature of recent UK economic data will spur concerns that the UK recession may be deeper than the preliminary reports and that could prompt the Bank of England to re-consider implementing additional stimulus measures through quantitative easing.

The Pound has dropped to a two-week low against the Dollar, but has remained resilient versus the Euro and a basket of currencies. The Euro is feeling the strain from the economic and political uncertainties within the Euro-zone, with speculation mounting that Greece will lead a Euro-area exit. The single currency slipped under the pivotal 1.30 level against the Dollar and it seems likely we’ll see a test of resistance in the region of 1.2550 versus the Euro before too long.

Overall, the Pound is trading at 2012 highs against a basket of currencies, which is very attractive for those of you looking to sell Sterling. However, a word of caution – the UK economy is technically in a recession and the idea of further quantitative easing if the contraction proves deeper is still on the table. It would be naïve to think this rally could continue indefinitely and these rates that we haven’t seen for months, even years in some cases, may prove very attractive in the months ahead.

There was further evidence of defensive inflows into Sterling as a safe haven from the stresses in the Euro-zone. The latest UK government bond auction recorded a drop in 30-year yields compared with the previous sale while there was an increase in the bid/offer ratio. There may be an element of caution today with the Bank of England interest rate announcement at midday.

Given the remote possibility of further quantitative easing to support the UK economy that is technically in a recession, the Pound may decline in the build up to the announcement. Markets overall expect the BoE will keep the amount of quantitative easing on hold and a decision to keep policy unchanged would provide a boost to Sterling.

The Pound pushed to a high of 1.2450 last night, the highest level since November 2008, while the UK currency recovered back towards 1.6150 versus the Dollar. The defensive demand for Sterling as an alternative to the Euro may outweigh any potential for an increase in stimulus measures. There is also a report this morning on UK industrial production and the GDP estimate from the National Institute for Economic and Social Research.

The Pound advanced through 1.60 against the Australian Dollar last night, albeit briefly, after the nation’s jobless rate dropped to the lowest level in a year last month. The Aussie was also subjected to fresh selling pressure, after a report showed lower-than-estimated export and import growth in China. The New Zealand Dollar bounced back from the recent low, halting an eighth consecutive daily decline.

Euro / US Dollar

The Euro struggled to get back above the 1.30 level against the Dollar yesterday and was again subjected to heavy selling pressure through the course of the day. The Greek political situation was again under heavy scrutiny with further attempts to form some semblance of government. The Euro weakened amid speculation that the EFSF loan payment to Greece may be delayed today.

There was also speculation yesterday that the Spanish government would take a majority stake in Bankia with further capital injections into the banking sector as a whole. Confidence in the Euro-zone will remain extremely fragile. The increase in risk aversion is likely to continue to support the Dollar, as its safe status makes it attractive for investors with confidence lower.

Data Released Today

EU 09:00 ECB Monthly Bulletin (April)

U.K 09:30 Industrial Production (March)

- Manufacturing Output

U.K 12:00 BoE Policy Announcement

U.S 13:30 Trade Balance (March)

U.S 13:00 Weekly Jobless Claims (w/e 5th May)

U.K 15:00 NIESR GDP Estimate (April)

Related posts:

1. Foreign Currency Exchange Rate Forecast – The Pound declined against the Euro and the U.S Dollar
2. Foreign Currency Rate Forecast News – The Pound declined against the Euro exchange rate for the sixth consecutive day
3. Pound Sterling, the Euro and US Dollar exchange rate News – The Pound declined against the Euro exchange rate
4. Pound Euro & US Dollar Exchange Rate Forecast – The Pound has declined heavily against the majors this morning
5. Pound to Euro, US Dollar Exchange Rate: The Pound declined against the majors

Tags: Currency Forecast, Currency News, Currency Predictions, Currency Rates, Daily Insight, Euro, Foreign Exchange News, Foreign Exchange Rate, Pound, Sterling, US Dollar
Category Daily Insight