The ‘Loonie’ finally broke free from its narrow trading range today and was able to strengthen against almost all of its currency counterparts thanks to surprising growth figures.
Although the Pound was supported by positive UK data and optimism surrounding the nation’s economic recovery, Sterling shed gains against the Canadian Dollar during the North American session.
The news that Canada’s economy unexpectedly expanded by an annualised 2.9 per cent in the fourth quarter (following growth of 2.7 per cent in the third) helped the Canadian Dollar climb.
Economists were expecting a reading of 2.6 per cent.
Month-on-month contraction of 0.5 per cent in December (larger than the contraction of 0.3 per cent forecast) did mean that Canada’s GDP came out at 2.3 per cent in December year-on-year, down from a positively revised 2.7 per cent in November.
Canada’s fourth quarter growth was driven by consumer spending.
Consumer spending surged by an annualised 3.1 per cent in the final quarter of last year while exports climbed by 1.7 per cent and imports jumped by 0.9 per cent.
Business investment declined by 1.9 per cent in the same period.
The growth report encouraged this response from fixed income strategist Mark Chandler; ‘The consumer continues to roll along which is good I guess in an absolute sense, but is bad if you’re expecting what the bank is expecting, which is a rotation to exports.’
However, while this might not be quite the result the Bank of Canada was hoping for, it does show that the Canadian economy is experiencing fairly reasonable growth.
‘Loonie’ gains against the US Dollar were a little limited in light of the US growth data published at the same time.
In recent months the Bank of Canada has stopped alluding to the possibility of a rate increase occurring in the near future, a factor which has contributed to the ‘Loonie’s bearish performance.
Next week the BOC will deliver its latest rate decision. If the central bank adopts a more positive tone the Canadian Dollar may be supported.
Additional ‘Loonie’ movement could be triggered by Canadian industrial product price figures, Canadian building permits data and the nation’s Ivey Purchasing Managers Index. Canadian unemployment data will also be of particular interest.
The Bank of England is scheduled to deliver its rate decision next week, and the forward guidance offered by the institution will be instrumental in directing the Pound’s movement over the next few weeks.
We forecast that the Pound/Canadian Dollar exchange rate will experience volatility next week as the market responds to several highly influential economic events.
Canadian Dollar (CAD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Canadian Dollar,
,Pound Sterling,0.5394,
Canadian Dollar,,US Dollar,0.9000,
Canadian Dollar,,Euro,0.6531,
Canadian Dollar,,Australian Dollar,1.0079,
Canadian Dollar,,New Zealand Dollar,1.0759 ,
US Dollar,,Canadian Dollar ,1.1123,
Pound Sterling,,Canadian Dollar,1.8533,
Euro,,Canadian Dollar,1.5306,
Australian Dollar,,Canadian Dollar,0.9913,
New Zealand Dollar,,Canadian Dollar,0.9326,
[/table]
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