Market Forecast - Sterling Vs. Canadian Dollar 31/08/10
A slight upward revision to the UK’s second quarter GDP figures to 1.2% did little to lift Sterling last week as investors focus on the longer term impact of the government’s austerity measures. On the other side of the Atlantic the US suffered a drastic revision downward in their Q2 GDP figure, from 2.4% to 1.6%, with a rise in net imports largely to blame. Analysts had been expecting a worse revision, so markets were not unduly perturbed by the data. Canadian second quarter growth figures are due out today, with analysts expecting annualised growth of 2.5%, down from the 6.1% seen in the first quarter. A worse than expected widening in the trade balance had little impact last week.
Since last week’s report the Pound has remained in a tight range, pushing at the recent highs around 1.6400. It seems to have found resistance around these levels, and while the trend is still positive for Sterling, we advise clients to cover half of any CAD requirement here while the going is good.
Market Forecast - Sterling Vs. Canadian Dollar 23/08/10
Sterling rebounded from the 1.60 level last week after data showed that retail sales rose 1.1% in July, more than the 0.4% that analysts were expecting. The minutes from the latest Bank of England meeting were released on Wednesday, quashing speculation that the monetary policy committee were moving toward an easing stance. The 8-1 vote showed that Andrew Sentance continued to call for a rate hike despite recent soft data on housing and reports from the BoE that mortgage and business lending are still declining. Investors took comfort from the minutes, taking some pressure off the Pound and allowing it to move higher against most other currencies with the exception of the US dollar which is benefitting from its safe haven status in the face of growing risk aversion.
The Canadian dollar strengthened in the early part of last week after BHP Billiton made a $38bn bid for Canada’s Potash Corp. The merger excited traders because it would create a surge in demand for Canadian currency in order to pay for the merger. However, once the market had factored this in it looked back to other data and decided that a raft of weaker US data and a modest dip in Canadian inflation in July was reason enough to send the currency lower again.
The technical outlook is positive. The trend is still for a stronger pound, and last week’s bounce from 1.60 puts the market in a good position to have another crack at the 1.65 level. A daily close above there would significantly increase the chances of seeing 1.70 – 1.75 over the next few weeks. On the downside, a break below 1.60 would be cause for concern.
** Suggested level based on the interbank rate. The rate you achieve will depend on the volume of currency traded.
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