Sterling reaches 10-week high against the Canadian Dollar

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The Canadian Dollar suffered from the double-whammy of weak US and Canadian GDP last week and was unable to share in the success of its New Zealand and Australian cousins. Unlike them, it is not thousands of miles removed from debt crises as investors' worries about the debt ceiling impasse in Washington spread, by proxy, to the Canadian Dollar.

Nor was the Canadian economy able to help itself. There was only one salient statistic – Friday's GDP figure for May – and that it did not make good reading. Instead of expanding by 0.1% on the month, the Canadian economy actually shrank by -0.3%. The news came out at the same time as figures revealed that the US economy grew by only 0.3% in the second quarter and that Q1 growth had been downwardly revised to an almost invisible 0.1%. Investors rushed to sell the US Dollar and the Canadian Dollar in equal measure.

With last week's dismal performance fresh in the memory it would be rash to expect the Canadian Dollar to enjoy some smooth waters from now on. This week building permits shouldn’t present a problem however, Friday's employment data could. If Canadian payrolls rise by less than the expected 20,000, the Canadian Dollar could find itself in some stormy waters. Especially if that figure is accompanied by a disappointing US non-farm payrolls number as well.

Sterling has perked up this week avoiding the negative effect of two weak figures from the Confederation of British Industry last week, probably because investors were too busy giving a collective sigh of relief when the US announced a deal to increase it’s debt ceiling.

On the UK data front, there has been an increase in the number of UK mortgage approvals and, although lower than forecast, the first estimate for UK second quarter GDP came out at 0.2%. Although, it was lower than hoped, it was a relief it did not turn out worse.

Overall, it is a welcome reminder that investors are affected by fiscal responsibility and AAA credit ratings, neither of which the Eurozone or US can demonstrate. At the time of writing, Sterling is threatening £/CA$ 1.59  against the Canadian Dollar; if it can get above this level it will be the best time for nearly 10-weeks to buy the Canadian Dollar.

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