GBP/CAD weakened for most of 2016, and especially following the Brexit vote. After strengthening slightly in January 2017, the pair took off in April following Theresa May's call for an early election. As the Conservatives fared poorly in the following election, GBP/CAD gave back most of its initial gains. The Canadian dollar also strengthened substantially in the latter half of 2017, given strong economic growth and interest rate hikes.
The British pound is currently slightly higher against all major currencies except the euro and the Australian dollar. Yesterday, the pound ended the day down sharply against the US dollar. Yesterday's sell-off was accompanied by accelerating trading volumes in British pound futures, which were higher relative to both the previous session and 30-day averages. The combination of a sharp move lower and higher volumes suggest that traders sold the currency with conviction. Today's GBP/USD trading range is 1.2920 - 1.3260.
Thanks to a combination of slowing retail sales data, concerning Brexit headlines and pressure on the euro, the pound had plenty of reasons to weaken yesterday. Starting with the data, year-over-year retail sales growth slowed to 3% in September. The figures were disappointing as comparable retail sales at this point last year were slowing in rate-of-change terms. As consumption is a significant component of the U.K.'s economy, slowing retail sales have broader implications for economic growth in the third and fourth quarter of this year.
Turning to Brexit developments, the pound sold off sharply yesterday after Theresa May said that the EU's proposal on the border was unacceptable. May also suggested that she would be willing to extend the transition period "for a matter of months" in order to address ongoing differences. Earlier today, sterling ticked up following Michel Barnier's comments saying that a Brexit deal was 90% complete. Barnier did, however, suggest that the Irish backstop issue remains a significant roadblock. As trade negotiations remain volatile, Brexit-related news continues to have a significant impact on the pound in the short term.
Lastly, the pound is likely to remain under pressure thanks to slowing growth in the Eurozone. As described in today's euro daily update, Italian debt concerns continue to weigh on the common currency. Given the U.K.'s significant trading relationship with the Eurozone, the pound is closely correlated to the euro. Our outlook on the pound remains bearish.
GBP/USD is currently above 1.3050. EUR/GBP is up slightly, with the pair trading above 0.880. The pound is down against the Australian dollar and up against the Canadian dollar. GBP/AUD is currently above 1.8260, while GBP/CAD is above 1.7080.
|October 16||Claimant Count Change SEP||18.5K||14.2K|
|October 16||Unemployment Rate AUG||4%||4%|
|October 16||Average Earnings excl. Bonus AUG||3.1%||2.9%|
|October 16||Average Earnings incl. Bonus AUG||2.7%||2.6%|
|October 17||Core Inflation Rate YoY SEP||1.9%||2.1%|
|October 17||Inflation Rate YoY SEP||2.4%||2.7%|
|October 17||BoE FPC Minutes|
|October 18||Retail Sales ex Fuel YoY SEP||3.2%||3.6%|
|October 18||Retail Sales YoY SEP||3%||3.4%|
|October 19||Public Sector Net Borrowing SEP||£-3.26B||£-4.76B|
|October 19||BoE Gov Carney Speech|
The Canadian dollar is currently selling off against all major currencies except the Japanese yen. Yesterday, the loonie ended the day sharply lower against the US dollar. For the third session in a row, trading volumes in Canadian dollar futures accelerated relative to the previous session. The combination of recent weakness and rising volumes suggests that traders are selling the loonie with conviction. Today's USD/CAD trading range is 1.2770 - 1.3120.
Following a significant slowdown in year-over-year inflation, the Canadian dollar sold off sharply earlier today. Looking at the figures, headline inflation in September slowed to 2.2%, versus 2.8% in August. Consensus estimates had also called for significantly higher inflation in September. Ahead of next week's Bank of Canada interest rate decision, the significant slowdown in inflation (from its recent peak at 3% two months ago) is a serious concern for Canadian dollar traders. Beyond the recent slowdown, inflation is likely to keep slowing thanks to steepening base effects. In other words, rising inflation at this point last year makes a continued acceleration in year-over-year inflation mathematically more challenging. All else held equal, falling inflation lowers rate hike expectations, in turn weighing on the Canadian dollar.
While September retail sales figures (also announced earlier today) beat the previous monthly figures, note that August retail sales numbers were revised lower. As consumption is a significant proportion of Canada's overall economy, retail sales have a significant impact on the outlook for growth. As retail sales growth has been decelerating in rate-of-change terms this year, it follows that the outlook for Canadian growth is weakening accordingly. Our outlook on the Canadian dollar remains bearish.
The USD/CAD exchange rate is currently above 1.3110. The euro is up against the Canadian dollar, with EUR/CAD currently above 1.510. The pound is up against the Canadian dollar, with GBP/CAD trading above 1.710. CAD/JPY is flat, and currently trading above 85.70.
|October 15||New Motor Vehicle Sales AUG||185.2K||179.6K|
|October 15||BoC Business Outlook Survey|
|October 16||Foreign Securities Purchases AUG||C$2.82B||C$15.29B|
|October 16||Foreign Securities Purchases by Canadians AUG||C$-0.19B||C$13.06B|
|October 17||Manufacturing Sales MoM AUG||-0.4%||0.9%|
|October 18||ADP Employment Change SEP||28.8K||42.7K|
|October 19||Core Inflation Rate YoY SEP||1.5%||1.7%|
|October 19||Inflation Rate YoY SEP||2.2%||2.8%|
|October 19||Retail Sales YoY AUG||3.6%||3.5%|
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