Category: exchange rates

Sterling climbs against loonie

British PMIs lead the way in manufacturing and services sectors. Non-controversial G20 communiqué welcomed by markets. Canadian economy shrinks for a sixth consecutive month.

The pound climbed steadily throughout most of the week. Starting from $1.77 last Monday it peaked at $1.84 on Thursday and again on Friday. It was trading a little easier at $1.83 when London opened this morning.

Little as the market cares for economic statistics at the moment it could not ignore two minor triumphs for the UK economy last week. Purchasing Managers’ Indices are compiled by national professional associations in several countries. Precise methodologies differ from place to place but there is a common theme. Firms are canvassed about their perceptions of current trading activity and their plans for the future. Those who think things are going well or who expect improvement in the months ahead register a plus. The pessimists go in as a minus. When all the results are in they are consolidated into a PMI that covers a range of 0-100. An index of 50 is neutral; as many firms are doing well as are doing badly, implying zero growth. Publication of the figures for Britain, the Euro zone and the United States is coordinated to happen on the same day. First come the manufacturing sector PMIs, followed a couple of days later by the services sector numbers.

For a year or more the indices in every country have been significantly below that breakeven point for obvious reasons. Last week however, the UK economy delivered better results in both categories than either the Euro zone or the United States. Britain’s manufacturing PMI came in at 39.1, four points better than the previous month and three points ahead of the nearest opposition. The services PMI did even better, less than five points short of breakeven at 45.5 and comfortably ahead of the US at 40.8 and Euroland at 40.9.

Adding to the positive tone for sterling, mortgage approvals rose in February to their highest level since May last year and consumer confidence improved from -35 to -30, still negative but heading in the right direction. Nationwide and the Halifax told contradictory tales about the direction of house prices in March, effectively cancelling each other out.

The G20 meeting managed to meet investors’ modest expectations so was considered a result. President Sarkozy did not walk out and the free-marketeers compromised on the matter of heavier regulation for the financial sector. A G20 agreement was never going to revitalise the global economy at a stroke. On the other hand, public disharmony could have postponed recovery by denting confidence. It did not happen, for which we must be grateful.

The G20 effect, both before and after the event, was to raise confidence levels among investors. That worked against the dollar and to the benefit of riskier currencies, including the pound.

There was nothing in Canada’s few economic data to help the situation for the Loonie. Increases in both the industrial product price index and the raw materials price index were of no consequence with the Reserve Bank of Canada’s benchmark interest rate down at 0.5% and going nowhere. Canada’s monthly assessment of GDP identified a 0.7% decline in January following December’s 1.0% drop. It was the sixth successive month of economic contraction and represents a total fall (so far) of 3% from the peak last summer.

This week’s meeting of the Bank of England’s Monetary Policy Committee should be less of a challenge than usual for the pound. With the Bank rate already down to 0.5% the MPC has little scope – and probably even less inclination – to take it lower. The general paucity of economic data ought to allow the pound to build on last week’s foundations but experience shows that recovery for sterling is almost never a one-way street. Buyers of the Canadian dollar should continue to hedge their exposure, fixing a price for half of whatever they need and using a stop order to protect the balance against unexpected nightmares. If price certainty is essential there is no alternative but to cover the whole amount.

Posting courtesy of TTT Moneycorp

Sterling and Loonie roughly in step

Coffee time
Coffee time

 Sterling unnerved by unemployment data. IMF predicts longer recession for Britain. Bank of Canada may decide to employ quantitative easing.

An erratic five days took sterling from $1.79 to $1.76 and back, visiting all points in between.

Although there was no particular shortage of data from the UK economy investors paid only selective attention to the numbers. They were far more interested in the anecdotal evidence, both from Britain and abroad. Perhaps the most irrelevant statistic of the week was Rightmove’s house price index. While the Nationwide and the Halifax report annual price falls of 18% or more Rightmove sees just a 9% decline. Unlike the first two indices, which are based on actual transactions, Rightmove measures the prices at which vendors would like to sell their properties. If they could.

The one set of figures that did hurt sterling was the unemployment numbers on Wednesday. Another 138,00 ex-taxpayers signed on the dole in February, taking the rate of unemployment past the two million mark. Having been primed by analysts and the media to expect it, investors could probably have lived with the 2 million unemployed. What they could not handle was the sharpest monthly leap in claimants since 1971.

Investors were more relaxed about the latest predictions from the International Monetary Fund. The IMF believes Britain’s will be the only western economy still in recession by the end of next year. News like that has brought the pound to its knees in the past. This time, everyone was far more concerned about the unemployment situation and about how the number could have risen from two to three million by the end of the year.

As was the case with sterling, the market not overly concerned about the Canadian data. Sentiment was by far the biggest influence on the Loonie. The Federal Reserve’s decision on Wednesday to take a further step down the road to quantitative easing made the Greenback the world’s whipping boy and allowed the Canadian dollar to add three US cents in a matter of hours. That rally coincided with a similar performance by sterling, allowing sterling/Canada to end the week unchanged.

That sentiment is now having to contend with the possibility that Canada will join Japan, Britain and the States with a programme of quantitative easing. The US approach started with non-government debt, only moving on to Treasury Bonds last week. The Canadian strategy, assuming it happens, is more likely to go straight to government bond buy-backs, as happened in London earlier this month.

Investors have become twitchy about quantitative easing, fearing that it really will amount to printing money in the medium term. As sterling and the US dollar have discovered to their cost, the market is not a big fan of QE, at least as far it relates to the currencies concerned. If the Bank of Canada follows the same path the Loonie can reasonably be expected to take its share of the pain. Buyers of the Canadian dollar should hedge their exposure, fixing a price for half of whatever they need and leaving the remainder uncovered in anticipation of better levels in the future. Those of an optimistic bent may consider under-hedging, always bearing in mind the pound’s propensity to head south at the drop of a hat. Use a stop order to protect the downside in case of unexpected alarms.
Post courtesy of TTT Moneycorp

Green shoots of recovery and the UK/CAD exchange rate

Quantitative easing is underway in Britain. Rising equity markets are weighing on the dollar. G20 gives the impression of useful agreement. Canadian job losses are keeping pace with the US.

Sterling made heavy weather of losing a cent and a half to the Canadian dollar. From $1.8050 the pound fell quite swiftly to $1.7550 before reversing just as promptly to $1.79. It spent the rest of the week bouncing between $1.77 and $1.80, opening in London this morning at $1.79.

Sterling was handicapped for most of the week by investors’ nervousness about the much-trumpeted “quantitative easing” that is supposed to restore liquidity to the retail end of the financial system. The Bank of England intends to buy £75 billion of gilts in the next three months with the first £2 billion tranche going out last Wednesday. That first “Asset Purchase Facility gilt purchase operation” received guarded approval from the media but investors were twitchy about how well the reverse auction would go and were still twitchy afterwards because only banks were seen to have taken part. Pension funds and other institutions either decided not to take the risk or simply did not want the money.

As to the effectiveness of the programme, the jury is still out and will not be coming in anytime soon. Sceptics believe falling deposit rates and rising loan rates prove that commercial banks are following an agenda different from that of the government and the Bank. An attendant fear is that the government could be tempted to monetise its debt, leaving the purchased gilts on the central bank’s books until maturity and thus, in all but the literal sense, printing money.

Economic data from the UK did not particularly help matters for sterling. The two key figures released last week showed an acceleration in the slowdown of industrial production and a widening of the trade deficit. Industrial production fell by 2.6% in January and it was 11.4% down over the 12 month period.

Canada’s economy also had little to say for itself, again with just two salient and unhelpful data sets; trade and employment. In tune with the trend in other developed economies, imports and exports both fell in January for a third successive month. That the $1 billion deficit was in line with forecasts did not make it any more palatable. The labour market report maintained the impression that Canada’s job situation is proportionally just as unpleasant as what is happening in the States. Job losses since October already amount to nearly 300k and there are undoubtedly more to come. Unemployment went up in February to 7.7%, the highest level for six years.

The G20 finance ministers’ meeting in Horsham was a qualified success. With that many participants it was never likely to deliver a huge breakthrough but it could have created mischief for the global economy if participants had been seen to squabble. Some cynics have dismissed the communique as a list of platitudes, including as it did a bit of self-congratulation, a bit of commitment and a bit of coordination. But perhaps the most heartening part was the frequent use of the word “we” and the absence of any allusion to disagreement among the 20. It does not guarantee the emergence of global financial harmony when the leaders meet next month in Beckton but it does at least provide a stable platform upon which they might be able to build.

The most hopeful message came – surprisingly – from US Federal Reserve Chairman Ben Bernanke. He told a CBS interviewer that “I do, I do see green shoots [of economic recovery]”. Those who remember Tory chancellor Norman Lamont using similar words prematurely in 1992 may raise an eyebrow but Mr Bernanke’s sentiment seemed honest. Let’s hope his optimism is not misplaced.

Sterling’s potential obstacle this week will be Wednesday’s employment data as it continues to respond to general nervousness about the economy and the banks. The pound might have turned another corner against the US dollar but has yet to prove itself against the Loonie. Buyers of the Canadian dollar should hedge their exposure, fixing a price for half of whatever they need and leaving the remainder uncovered in anticipation of better levels in the future. Those of an optimistic bent may consider under-hedging, always bearing in mind the pound’s propensity to head south at the drop of a hat. Use a stop order to protect the downside in case of unexpected alarms.

Posting courtesy of TTT Moneycorp :

Sterling / Canadian dollar exchange rates

The record low for base rates was widely anticipated. The plan for quantitative easing received qualified approval. Canadian rates also went down to 0.5%. Sterling remains weighed down by nervousness about banks.

The pound covered a range between $1.80 and $1.83, paying more attention to the downside than to the overhead resistance. It opened in London this morning at $1.8050, a cent and a half lower on the week.

A grab-bag of second division economic data had little visible effect on the pound. Money supply, consumer confidence, manufacturers’ costs and factory gate prices are all interesting in their way but do not make compelling reading when everyone is obsessing about base rates. Even when the Purchasing Managers’ Index for Britain’s services sector outstripped Euroland and the United States the impact was muted.

It was the Bank of England’s interest rate announcement on Thursday that held the market’s attention even after it had come and gone. The Bank’s decision to halve the Bank rate to 0.50% was no surprise, nor was the heavy hint that this could be the bottom. Attention centred on the other part of the package, “quantitative easing”, the £75 billion that the Bank intends to spend buying gilts in the next three months. After due consideration investors decided it was not such a bad idea.

Sterling’s stumbling block throughout the week was – and still is – investor nervousness about equities in general and financial shares in particular. Last month they were fretting about HSBC’s deeply discounted rights issue. On Friday they fretted about a report by Morgan Stanley that that corporate profits in Britain will fall by more than during the 1930s depression. The report highlighted banking losses and weak oil prices as major factors. This morning they were worried about the all-but-nationalisation of Lloyds Bank Group and the £260 billion of its assets that the government will guarantee.

Just as there was little surprise at the Bank of England’s rate cut, most investors were ready for the Bank of Canada to make the same move last Tuesday. They were especially ready after the Canadian GDP figures for the fourth quarter of 2008 showed a 3.4% annual rate of contraction. The 1.0% decline in December was the biggest since the recession of the early eighties. According to local analysts the initial slump in manufacturing is now spreading to other sectors of the economy and retrenchment is becoming widespread.

Falls in consumer confidence and building permits underscore that assessment. Consumers are more inclined to make major purchases, presumably because of deep discounting by durable goods retailers, but in every other area they answered the survey’s questions negatively. Residential building permits fell by 17.5% in January.

With few heavyweight economic data from either side of the Atlantic this week it looks as though it will again be corporate news and official views that drive the currency. The risk is that nervousness about UK banks’ solvency and independence will weigh it down. Buyers of the Canadian dollar should hedge their exposure, fixing a price for half of whatever they need and leaving the remainder uncovered in anticipation of better levels in the future. Sterling has upside potential against the Loonie but use a stop order to protect the downside in case of unexpected alarms.
Courtesy TTT Moneycorp

Canadian – Sterling Exchange rate news

Weak data and unhelpful news held sterling back. Sterling and Canadian interest rates will probably fall further this week.

Another modestly winning week for sterling took it from $1.8050 to $1.82. During most of the week sterling traded below its starting point but Friday’s rally took it from $1.7750 to $1.81 and it built on its gains early this morning.

It was a scrappy week for the pound. The economic statistics were not bad enough to do serious damage but bad enough to get in the way. It was the same with non-data economic news; nothing totally nasty but nothing good either. The CBI’s distributive trades survey damned with faint praise: Having been expected to worsen from -47 to -52 it improved to -25, not exactly a miracle recovery. The first revision to fourth quarter Gross Domestic Product left the economic shrinkage unchanged at -1.5%, in line with the Euro zone’s as yet unrevised performance. However, sterling’s critics pointed to the downward revisions to earlier periods. News from Nationwide and Hometrack confirmed – as if it were necessary – that house prices are still falling.

As for the non-data news David Blanchflower, the MPC’s über-dove, said the UK economy was “in dire straits”. With investors in profit-taking mode at the time he provided support for any selling decision. Another argument for sending the pound lower came from the European Commission. In a document prepared in January officials expressed concern that the pound’s “very rapid” drop “raises questions about the financial stability of the British economy.” Kate Barker, Mr Blanchflower’s MPC colleague, wrote in the Northern Echo that “growth may not resume until towards the end of this year.” Her words of caution came as a disappointment to those who thought it would resume next Tuesday.

Last week’s Canadian ecostats comprised just two sets of figures; those for retail sales and the Industrial Product Price Index. The 0.1% fall in the IPPI was slower than in recent months, mainly because coal and oil prices had stabilised. The retail sales number was a different matter. The 5.4% monthly decline was the biggest in 18 years. New car sales fell by 15% and petrol sales were down by nearly 12% in value terms.

The coming week brings the Bank of Canada’s decision on interest rates and fourth quarter GDP. A rate cut of at least 25 basis points is anticipated. The GDP number is likely to show a contraction in the economy at the end of last year but one that is less severe than those already logged by the United States, Britain and the Euro zone.

The currency outlook remains unchanged from last week. Analysts are divided about the future of exchange rates and each camp has its own, equally valid, arguments. Sterling has gone nowhere in the last four months and its frequent ten-cent excursions make people nervous. Tomorrow’s BoC meeting [where they reduced overnight rate by one half a percent] and Thursday’s meeting of Britain’s Monetary Policy Committee makes them more nervous still. Buyers of the Canadian dollar should hedge half their requirement, leaving the remainder uncovered in anticipation of better levels in the future. Use a stop order to protect the downside in case of unexpected alarms.

This article is courtesy of Moneycorp :

Moneycorp Foreign Exchange Services
Moneycorp Foreign Exchange Services
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