Foreign Currency Market Update – GBP / CAD Update
The Pound tested lower against the Canadian Dollar during last week’s session, trading down to 1.5591 on Wednesday. Significantly, the downward move failed to breach the 5-month low of 1.5545 which it last sank to on 17th January. Sterling ended the week with a flourish to touch 1.5793 just before Friday’s close.
Last Friday was a significant day for Canadian data releases, with January’s CPI Inflation figure providing a highlight. The headline inflation number printed above expectations at 2.5%, suggesting that the Bank of Canada may have to adopt a conservative approach to future monetary policy decisions. On the debit side, Thursday’s Canadian Manufacturing Shipments data for December showed a monthly increase of only 0.6% against expectations of a positive 2.0% print. Meanwhile, in the UK, data releases were depressingly soft until Friday’s better than anticipated UK Retail Sales numbers, which convincingly beat expectations to show at an annualised 1.9%. Up to that point, UK CPI Inflation numbers, which pointed to a significant cooling in the rate of British price rises, along with worse than expected domestic labour market numbers, had held back the Pound.
*Denotes the importance of the data item *** being the highest level.
** Tuesday morning sees the release of January’s UK Public Sector Borrowing figures – they are expected to show that the British government managed to pay off £6.3bn of its debt last month – a lower number than this could hurt Sterling.
*** Wednesday morning’s release by the Bank of England of the minutes of its February MPC meeting will be closely-monitored by analysts for clues on the future direction of British monetary policy.
*** Friday morning sees the release of the official Q4 GDP figures for the UK economy – a quarterly contraction of 0.2% is expected. Anything worse than this could spark a Sterling sell-off.
** Canadian Retail Sales numbers for December are published on Tuesday, with a slight drop from November’s monthly increase of 0.3% expected.
With the exception of a brief break of 1.5900 and a couple of downside breaks, one of which culminated in a 5-month low of 1.5545, the Pound has been trading in a sideways pattern against the Canadian Dollar since the turn of the year. The pair is in need of a fundamental push to send it back towards the band of resistance in the mid-1.6300s which it tested three times in Summer/Autumn 2011. Alternatively, Sterling-negative news could see the pair make a renewed run at 1.5300 which has provided support on four separate occasions since the start of last year. With a dearth of potentially market-moving data releases penned in for this week, such a move is unlikely to materialise for a little while at least. With the Bank of England likely to keep base rate on hold at 0.50% for the foreseeable future, the fundamental push required to launch GBP CAD towards its recent support/resistance levels could be provided if/when the Bank of Canada gives any indication that it is considering an alteration in domestic interest rates. The last change came last September – the next Bank of Canada policy announcement comes on 8th March.
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- Last week’s session saw the GBP AUD exchange rate break to a 27-year low
- FX068 Foreign Exchange Daily Insight – The Pound’s resolve will be tested this week