- GBP/CAD sags as Loonie finds inspiration for rebound
- Jobs report offers glimpse of August economic pick up
- But BoC policy uncertainty limiting GBP/CAD downside
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The Pound-to-Canadian Dollar exchange rate came off the boil ahead of the weekend after the latest Canadian employment figures spurred the Loonie on in an earlier rebound from prior losses that came alongside gains for other commodity and risk currencies.
Canada’s Dollar was vying with the Norwegian Krone for the runner-up spot in the G10 contingent of major currencies on Friday after Statistics Canada data showed the economy recovering a far larger number of jobs in August than had been anticipated by the market.
North America’s second largest economy created 90.2k jobs during the middle month of the third quarter when consensus had looked for 67.2k, marking a third consecutive blockbuster performance from the Canadian labour market.
“That takes a little bit of the sting out of a surprisingly soft preliminary GDP estimate for July last week and is still pointing to a relatively firm pace of recovery in Q3 on balance,” says Nathan Janzen, a senior economist at RBC Capital Markets.
“The strength and durability of that recovery over the rest of this year depends on relatively high vaccination rates reducing the need for future containment measures,” Janzen wrote in a note to clients following the release.
Canada’s economy had already recovered all of the 275k jobs lost to the latest ‘lockdown’ before August so Friday’s figures reflect further progress in repairing the damage by previous coronavirus containment attempts.
Above: Pound-to-Canadian Dollar rate shown at 15-minute intervals alongside USD/CAD.
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Friday’s data also potentially indicates that August could be a better month for the economy overall following a dire July month for which Statistics Canada has already warned of another outright contraction in GDP.
“The recovery is still choppy and, given the rise in infections in many areas, a lot of uncertainty remains,” says Bank of Canada (BoC) Tiff Macklem in a Thursday address to the Fédération des chambres de commerce du Québec.
“Against this background and the considerable excess capacity in the economy, the Governing Council judged that the recovery continues to require extraordinary monetary policy support,” Governor Macklem later added.
Canada’s Dollar built further on a tentative rebound against the U.S. Dollar, Pound and other currencies following Friday’s data, with price action coming alongside what were widespread declines for the greenback and handsome gains for commodity prices including oil.
Friday’s declines in USD/CAD weighed further on the Pound-to-Canadian Dollar rate, which had risen as far as 1.7564 this week before turning lower alongside the U.S. Dollar early on Thursday.
“A meaningful CAD rally may be impossible in the middle of an election campaign, but if the data were to surprise on the upside, and change the market's views around BOC rate hikes a bit, we could see USD/CAD run out of upward momentum and set up a Q4 drift lower,” says Kit Juckes, chief FX strategist at Societe Generale, in a note ahead of Friday’s job report.
Price action raises the possibility that an almost month-long period of underperformance by the Canadian Dollar is close to having run its course, although much still depends for the Loonie and GBP/CAD on the outcome of October’s BoC decision.
Next month’s policy decision sees the BoC update its economic forecasts and will be scrutinised closely by the market for clues on whether there remains any prospect of an initial increase in the 0.25% cash rate in the latter part of next year, which is what the market has been anticipating.
Although the BoC’s September statement largely reiterated its earlier guidance this Wednesday, the bank also acknowledged that recent economic data has been weaker than was envisaged in July’s forecasts, creating uncertainty about if the market’s expectations are sustainable.
“While the overall adverse risk tone in markets and some possible caution ahead of this month’s election have acted against the CAD of late, we expect the currency to outperform its major peers through the rest of the year as the BoC remains on track to end its quantitative easing programme in late-2021 or early-2022. Rate hikes should also follow in the second half of 2022,” says Juan Manuel Herrera, a strategist at Scotiabank.
Above: Pound-to-Canadian Dollar rate shown at daily intervals alongside USD/CAD.