by Jon Beddell
Foreign Currency Market Update – Sterling / Canadian Dollar
Even after last Monday’s dramatic plunge, sterling failed to retrieve any of those losses against a very strong Canadian dollar. Most other sterling crosses showed at least some bounce, but this one simply spent a few days consolidating at the lows before making fresh lows on Tuesday. It’s not surprising to see this sort of strength considering the Royal Bank of Canada issued a report on Thursday forecasting economic growth of 3.1% for 2010, driven by government stimuli and improved credit markets. There were also predictions that the Canadian dollar will reach parity with its US counterpart in the short term. Unemployment declined in January, and data on new house construction was much improved.
Meanwhile, despite a second successful gilt auction on Tuesday, sterling is failing to make any headway. Two other news items have dominated the wires this week. Firstly the latest international trade figures which showed Britain’s trade deficit reaching £8bn in January, far higher than analyst expectations, and this coming despite a weak pound which should help to boost exports! The next blow came from a report from credit ratings agency Fitch, who yesterday labelled Labour’s promise to cut the deficit in half by 2015 as “too slow”. This sort of report only helps to recycle the persistent speculation of a possible cut in the UK’s credit rating.
The technical outlook is dire. We are touching new lows almost daily, and there doesn’t seem to be any near term catalyst to turn things around. Buyers of the Canadian dollar should consider covering any requirement now rather than speculate on a recovery that may be a while off yet.
Canadian Dollar currency chart:
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