Category: exchange rates

Sterling-Canadian Exchange Rate News

Inflation and retail sales numbers improved the appeal of sterling. Canadian inflation has fallen below 2%. Canadian manufacturers are finding it harder to shift product.

Sterling made back most of the previous week’s losses, rallying from $1.7650 to $1.8050. Last Monday’s starting point was to be the low of the week and it peaked above $1.81 late on Friday and again in the Far East this morning.

Sterling has done well against most currencies. Less than helpful news stories were offset by economic data which, though far from marvellous, were sometimes better than investors had hoped. Two statistics deserve particular credit. Consumer prices fell by a less than expected 0.7% in January, taking CPI inflation down from 3.1% to 3.0%. The modest decline made investors less sure of further aggressive rate cuts by the Bank of England. Friday’s retail sales figures had a similar implication. Up by 0.7% in January sales receipts were a surprising 3.6% higher on the year. These “official” retail sales data have developed a reputation for being erratic. Even the Monetary Policy Committee is wary of attaching too much importance to what it sees as potentially misleading figures. Yet the market could not ignore what looked like a decent performance by shoppers.

On Wednesday morning a rumour did the rounds alleging that Britain would lose its triple-A credit rating. That may or may not be the case but the UK is a long way back in the queue behind Italy, Ireland, Austria and goodness knows who else.

The Confederation of British Industry moaned that sterling weakness has done little to improve the export performance of British companies. How ironic that it made the complaint on the very day the minutes of February’s Monetary Policy Committee meeting came out. According to the minutes; “it appeared that UK exporters had, on average, responded to the lower level of sterling by boosting margins, rather than by cutting foreign currency prices and gaining market share.”

Inflation has not yet fallen as far in Canada as it has in Japan and the United States, where CPI has not risen at all in the year to January. Figures last week showed, however, that it is down to 1.9% and heading south faster than expected. Lower energy prices are the main influence, with petrol down to 43p a gallon, accompanied by aggressive discounting by retailers.

Also going down are manufacturing shipments, which fell in December at their fastest rate in 17 years. The slump in global demand for durable goods pulled shipments down by 8% in January after falling 6% the previous month. Transportation manufacturers shipped a sixth less in 2008 than they did in 2007. Except for a microscopic 0.1% increase in printing and related activities all of the other 20 sectors suffered a decline. It was a similar story for wholesale trade, which registered a 3.4% monthly decline. Again it was durable goods that dragged activity lower; Canadians are still buying cigarettes and food & beverage items.

Sterling/Canada continues to behave erratically. Although it has gone nowhere in the last three months its frequent ten-cent excursions make people nervous. Buyers of the Canadian dollar should hedge half of 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

UK / Canadian Dollar News – February 16, 2009


The prospect of “quantitative easing” by the Bank of England turns off investors. House prices lose their impact. President Obama’s stimulus package leaves all markets unconvinced. Having little to say for itself the Canadian dollar tagged along with the US dollar
Sterling was the net loser on the week, falling from $1.82 to $1.7650. A brief initial rally above $1.83 quickly went into reverse and the week’s low was not far short of $1.75 on Friday.

Bizarrely, for the third week running, it was Barclays that opened the batting for sterling. Investors were enthusiastic about its announcement of better than expected profits, setting a positive tone for the pound. More good news came with the British Retail Consortium’s report that sales in January showed the biggest monthly improvement since May. It was the first increase of any sort since September.

House prices have taken a back seat in recent weeks. Investors are more concerned about the recession and the health – or otherwise – of the financial infrastructure than they are about further confirmation that the property market remains soggy. Neither the lowest turnover for 31 years, as revealed by the RICS, nor the 1.2% monthly rise in asking prices reported by Rightmove had any appreciable impact. Even Rightmove admitted the improvement was a function of “false optimism” among would-be sellers.

Most distressing for the pound was Bank of England Governor Mervyn King’s press conference after publication of the Bank’s Quarterly Inflation Report. Among other things he said we were in the midst of a “deep recession” that could see the economy shrinking at a 4% annual rate this summer. (The CBI sees the economy shrinking by 3.3% this year.) Investors were less concerned about the Bank’s recognition of the blindingly obvious state of the economy than they were about the proposed remedy: Quantitative easing or, as the media see it, “printing money”. The Monetary Policy Committee has not yet agreed on this course of action but the Governor gave every impression that it would do so before long.

The main driver for currency movements during the week was the progress of President Obama’s stimulus bill through Congress. The American Recovery and Reinvestment Act will spend $787,000,000,000 on everything from tax breaks to “weatherizing” (insulating) homes. Unfortunately, markets are not convinced that it will do anything other than blow more money away in return for unpredictable economic benefits. This uncertainty encouraged the hoarding of safe-haven currencies and a drift away from the riskier ones, including sterling.

The Canadian dollar attached itself to the US dollar’s coat tails and kept pace with the greenback through most of the week. It had little alternative. There were few economic data to give it a life of its own. Housing starts slowed in January (on a seasonally adjusted basis, not just because it was too cold). The trade balance moved into a very small deficit. New home prices fell for a third month, but only just. New motor vehicle sales fell by 15% in December; twice as quickly as in November.

In Rome at the weekend the G7 finance ministers’ meeting had little to say about exchange rates. Because it came up with no panacea for the world’s economic ills investors took it as carte blanche to fill their boots with yen and Swiss Francs and to sell the riskier currencies, including the pound.

Buyers of the Canadian dollar should hedge their exposure, buying forward around half the amount they will need.

Courtesy TTT Moneycorp

UK / Canadian Dollar News – February 9, 2009

Investors paid less attention than usual to the economic data. Sterling rallied after the Bank of England cut interest rates to a record low. An awful Canadian employment report did not hurt the dollar as much as it might have done

After a brief dip to $1.74 the pound headed upwards for a second week. It peaked at $1.84 on Friday and was trading at $1.82 when London opened this morning.

It did not look too good at the beginning of the week. Seven days earlier Barclays had helped sterling with a promise of profits exceeding £5 billion. This time it was Barclays that tripped it when Moody’s downgraded its long term debt in anticipation of further “significant” losses at the bank. Things started to look up when the market took a positive view of Chancellor Alistair Darling’s proposal for the appallingly nicknamed “Toxic Bank”, which will mop up the junk assets that nobody else will touch. It was seen as another step towards normalisation of the credit market and therefore a good thing.

There was no shortage of UK economic data but the figures had less than their usual impact on currencies. It seemed almost as though the market was taking a perverse pleasure in reacting unpredictably to announcements. On Wednesday Gordon Brown’s allusion in parliament to “the depression” was ignored: it would normally have had investors running for the hills. On Thursday the pound went down after the Halifax house price index went up for the first time in nearly a year. Most interesting of all was the way sterling rallied after the Bank of England lowered its Bank Rate by half a percentage point to 1%, the lowest ever level. The relief rally was apparently because the Bank made no mention of further cuts in the future, making it possible that 1% might be as low as base rates go.

The Canadian dollar was doing a very good job of keeping a low profile until Friday when the monthly employment report came out. It was a bad one. The net employment change in January was -129,000. That means 129,000 people out of work that had jobs in December. The figure was six times as bad as the previous month (firms try to avoid laying people off at Christmas) and three times as bad as forecast.

The Loonie nearly came to grief. It lost a cent against the US dollar and nearly two against the pound. However, almost immediately the Canadian dollar began to recover, lumped together with the Aussie and the Kiwi as a destination for optimistic money.

There is a sensation that investors have come to the conclusion that most, if not all, of the bad news is built into sterling’s price. That does not mean they will greet weak data with joy but it does mean they will need to see something particularly dreadful before they get back into selling mode. Buyers of the Canadian dollar should hedge their exposure, buying forward around half the amount they will need. An aggressive stance would be to under-hedge but to do so would be to risk further gains for the “risky” high-yielding currencies such as the Loonie as risk appetite re-emerges.

Courtesy TTT Moneycorp

UK / Canadian Dollar news – Feb 2nd, 2009

The pound was an all round winner as the bears ran out of bad news. A probable Rate cut will weigh on sterling at least until Thursday. Canada’s economy shrank by 0.7% in November.

Sterling started off last Monday at $1.6750 close to a very long term low. It reached $1.75 on Wednesday morning and was up to $1.79 by the end of Friday. When London opened this morning it was off its peaks at $1.7550, eight cents and almost five per cent up on the week.

If only for one week, Sterling was the undisputed champion of the world. Over the seven days it gained 5% against the US dollar, 5.5% against the Swiss franc and 6% against the euro and the yen. Its performance against the antipodean dollars was even more striking, adding 8.5% against the Aussie and 9.5% against the Kiwi.

The two reasons for its success were a reaction to the trashing it had suffered earlier and a growing realisation that Britain’s is not the only economy in the firing line. UK economic data were few and far between, thus not providing too many opportunity targets for the bears. Of the figures that did come out some were even relatively benign for a change. The week got off to a good start for “risky” currencies with harmless data on all sides – not just the UK – setting a tone for greater risk appetite that would carry through most of the week.

For the rest of the week UK ecostats managed to dodge the bullets. The CBI’s retail survey was not as bad as feared. Nationwide’s house price index was in line with figures already seen elsewhere. Most of Friday’s money supply figures were positive, including a 15% increase in December’s mortgage approvals.

The Canadian dollar did not have many bullets to dodge. Apart from November’s monthly measure of GDP the only figures related to Industrial Product Prices (producer prices) and raw materials prices. Both fell, in line with similar price falls elsewhere, as a result mainly of cheaper energy and commodities.

With Friday’s GDP reading it was the same story. The United States’ economy shrank by 3.8% in the last three months of 2008. It was therefore no surprise that Canada’s economy contracted by 0.7% in one of those three months. The two countries are, after all, joined by the longest border in the world.

The last week of impressive gains will be a tough act for sterling to follow. A bounce in reaction to a long run of losses is not the same thing as a sustained rally. Moreover, the pound’s supporters will have to face their monthly test of nerve on Thursday with the Monetary Policy Committee’s decision on interest rates. The current guess is that a 50 basis point cut will take base rates down to 1%. Expectation of a cut this week already has investors looking ahead to the next moves. There is concern that sterling rates could follow Swiss, Japanese and US rates to I-can’t-believe-it’s-not-zero.

With most of the bad news already incorporated into its exchange rate the pound should not come under undue pressure but that does not mean it can replicate last week’s performance. Buyers of the Canadian dollar should hedge their exposure, buying forward around half the amount they will need.
TTT Moneycorp

UK / Canadian Dollar News – January 26, 2009

Sterling the loser on every front. RBS loss makes investors worry about other banks. Q4 GDP contraction confirms a UK recession. Canadian retail sales fall in November. The BoC cuts is benchmark interest rate to 1%.

Sterling had good reason to look uneasy when it opened in London last Monday at $1.83: it turned out to be the high of the week. By Wednesday evening the pound was down to $1.74 and it continued south. The low point came early this morning at $1.67 and sterling was trading half a cent above that level when London opened.

The pound could not put a foot right. There were several major ecostat obstacles for it to negotiate and it tripped over every one of them. The week got off to a bad start with the announcement from RBS that it had mislaid £28 billion last year, along with 97 per cent of shareholder value. Investors were entitled to wonder if its performance was symptomatic of some wider British financial malaise.

Consumer prices fell for the third consecutive month, taking CPI inflation down to 3.1 per cent. 80,000 people signed up for unemployment benefit in December and countless thousands more lost their jobs but were ineligible to claim. The CBI’s industrial trends survey, which measures manufacturers’ order books, fell sharply. In December it had scored -35 and analysts were looking for -39 in January. What they got was -48, the weakest figure since 1992. Firms were more pessimistic about the future as well. Expectations were down from -42 to -43, a 27 year low. The coup de grace came on Friday, with the long-awaited news that Britain’s economy was truly, madly, deeply in recession.

In common with every other country, Canadian economic data tended towards the negative. Retail sales were down by 2.4% in November, the pain being shared equally by automobile retailers.

As generally expected, the Bank of Canada lowered its benchmark interest rate by 50 basis points to 1.0%. Because the move had been widely anticipated it had little effect on the dollar. The Loonie did strengthen appreciably on Friday despite a fall in the inflation rate that was larger than forecast. There was no obvious reason for the jump. Some analysts ascribed it to market expectation of an even bigger fall, others said it was because Canada’s fiscal situation was better than that of the States or Europe.

After a week of severe punishment, the pound can look forward to a bit of respite. It has many fewer economic data to contend with and with the recession box now ticked the bulk of the bad news should have been incorporated into the exchange rate. That is not to say a spectacular recovery is on the cards but it should mean a period of consolidation, even possibly an upward drift. Buyers of the Canadian dollar should hedge their exposure, buying forward around half the amount they will need.
TTT Moneycorp

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