Canada’s economy stagnated in Q2
The GBP/CAD exchange rate had a whipsaw day on Friday when it was revealed that Canada’s economy showed zero growth in the 2nd quarter of the year. This pair dived from CAD 1.7225 to below CAD 1.71 before spiking by a cent, dropping down again and it is back to CAD 1.7145 this morning. The markets were expecting quarterly growth of 0.3% and, after an annualised Q1 growth rate of 2.08%, the revelation of zero growth in Q2 and an annualised growth rate of just 1.12% was a lot to take in. Hence the unexpected volatility. It is also a Canadian Public Holiday today, so that may have exacerbated the reaction. The GBP/CAD rate has recovered all the losses it suffered between February and September 2022 although the pace of that recovery has started to slow of late. Other than having today off, Canadian dollar traders will have a busy week with a Bank of Canada interest rate decision on Wednesday and the unemployment data on Friday. It is highly unlikely the BOC will move their base rate on Wednesday but the evidence of the slowing GDP growth may change the rhetoric in their statement and any hint of a longer-term pool in interest rates is likely to weaken the Canadian dollar.
US employment report is mixed bag
Friday’s US employment data was a very mixed affair. A greater number of jobs were created than the markets had expected but the unemployment rate rose unexpectedly. Having created 187,000 fresh jobs in August, it was a surprise to see that that didn’t translate into a static or even slightly reduced unemployment rate. However, at 3.8% the right was notably higher than the previous 3.5%. That is also the highest unemployment rate we’ve seen since March 2022. This clearly confused the markets and traders appeared to react positively to the growth in non-farm payrolls ahead of a long weekend. The US celebrates Labour Day today. This morning though, it appears that traders are starting to absorb the rise in the unemployment level and we have seen the dollar give up roughly half of the gains it made on Friday. The GBP/USD rate is back up to $1.2625 and the EUR/USD rate has recovered, slightly less enthusiastically, to $1.0805. As it is a US holiday today, tier one data is few and far between, the most likely scenario is a continuation of these rising rates but perhaps at a slower pace until the US kicks in tomorrow.
GBP/AUD bounces on sharp profits downturn in Aussie companies
The gross operating profits amongst private non-financial Australian companies dropped by 13.1% in the second three months of 2023. This is the worst result from this survey with data going back to 2008. It has definitely made Australian dollar traders nervous and we can see that in the rise in the GBP/AUD rate this morning. This pair had been trickling lower and had fallen as low as AUD 1 .9465 in early trade but is already a cent higher since this morning’s data release. We will see how that reflects in the wider economy when Australia releases economic growth data on Wednesday morning. The markets are expecting growth of 1.7% in the year to June, down from 2.3% the previous quarter. We are also expecting to see data showing a drop in building approvals and then all eyes will be on the Reserve Bank of Australia to see if they have any kind of reaction to this economic slowdown.