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Monthly Currency Update - GBP/CAD October 09

Monthly Currency Update - GBP/CAD October 09

Old Oct 1st 2009, 10:35 pm
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Default Monthly Currency Update - GBP/CAD October 09

Hi All,

Here is an update of what’s been happening in the Currency Markets throughout September with the Canadian Dollar.

The start of the month (September) saw GBP/CAD initially fall to a two-month low after Sterling tumbled and the Canadian Dollar rallied on improved domestic data. Canadian retail sales grew much faster than expected in June, the latest in a series of upbeat economic numbers to raise hopes the economy is pulling out of recession. Sales jumped 1.0% from May, far surpassing forecasts for a 0.2% increase. But much of the rise was due to rising energy prices, especially for petrol, while volumes of sales inched up by just 0.4%. Sales were down 4.4% from a year earlier. However, the local Dollar pared some of its gains as oil prices skidded from a 10-month peak while a Bank of Canada official warned that the currency’s strength could hurt the nation’s economic recovery. “Other things being equal, a persistently strong Canadian Dollar would reduce real growth and delay the return of inflation to target”, Deputy Governor Timothy Lane told economists in his debut speech as Central Banker. Sterling then recovered slightly as UK GDP (Gross Domestic Product) was revised upwardly.

GBP/CAD slipped to four-month low mid month as firmer equities and oil prices buoyed the commodity-linked CAD, capitalising against a broadly weaker Sterling. The local Dollar shrugged off news that Canadian consumer prices posted their second steepest fall in more than 50 years in August suggesting inflation will not trouble policymakers as they look to withdraw expansionary measures taken during the recession. Consumer prices fell by 0.8% in August from a year earlier, with the rate of decline slowing from -0.9% in July, which was the sharpest drop since 1953. Core inflation, which is considered a better gauge of underlying prices, because it excludes volatile items such as petrol and some foods, met expectations by inching up 0.1% on the month and 1.6% on the year. The period of deflation in consumer prices in expected to be short-lived, with prices rebounding later this year as the economy expands.

With the Canadian dollar experiencing its own spell of weakness last week, GBP/CAD was one of the few sterling currency pairs that did not slump alarmingly as the Bank of England contrived to talk down the pound. The Canadian markets had been expecting another strong Retail Sales performance in July to follow June’s +1%, but the -0.6% result led to Canadian dollar selling on Wednesday, helping GBP/CAD to recover from below 1.74 to 1.76+. Like the US data the same month, there were some allowances for seasonal and weather related factors but the stretched (CAD long) position holders were spooked enough to lighten their risk fairly quickly. Subsequently, sterling slipped again on Mervyn King’s newspaper interview, published Thursday, in which he again endorsed a weaker currency for the UK.

Current Central Bank Rates:

Canada (Bank of): 0.25% (next meeting 20th October)
UK (Bank of England): 0.50% (next meeting 8th October)

GBP/CAD Highs & Lows of September:

High: 1.8094
Low: 1.7076

A movement of: 5.96%

Difference this would make on £200k

High: 361,880 CAD
Low: 341,520 CAD

A difference of: 20,360 CAD

Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely you are to make your money go further.


Mark Bodega
Director - HiFX
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