- Uncertainty is the key to the Pound’s decline
- Canadian Dollar recovers a little in spite of weaker domestic data
The Sterling – Canadian Dollar has two aspects to it. One is that Sterling is being battered in the Post-Brexit doldrums. No one is entirely clear what the plan will be to invoke Article 50 of the Lisbon Treaty, get the negotiations started and what effect the UK’s exit from the EU. Frankly, we don’t even know if any of that will happen yet but if the British Prime Minister is serious about ‘Brexit meaning Brexit’ then someday soon, that process should commence.
Until that happens, uncertainty means uncertainty and uncertainty also means negativity. The Pound is being pounded and this currency pair has slipped from the pre-referendum high of C$1.91 to the post referendum low of C$1.67.
There appears to be some support for the Pound at this level and GBPCAD has bounced from here a couple of times recently but it is hard to see a rational reason for this remaining the case when so little confidence can be drawn from UK government policies. In fact, the rate cut and monetary stimulus enacted by the Bank of England was always going to lead to a weaker Pound.
Meanwhile, the other aspect is that the recovering oil price and stabilising commodity markets along with a stoic US export market are favouring the Canadian Dollar in spite of weaker domestic data. Nonetheless, until the UK government get the ball rolling and some of the 27 countries that have expressed an interest in a trade deal with the UK start to sign on the dotted line; we have to prepare for further GBP weakness.
For CAD buyers
In the short term, any bounces to C$ 1.75 appear to be great buying opportunities. If that breaks, C$1.79 is the next target, followed by C$1.83. Protect against any move below C$1.66 because that could open the door to a fall into the high C$1.50s.
For CAD sellers
There is clear buying interest for Sterling around the C$1.67 level and that should be used to your advantage. If that breaks, then a fall into the high C$1.50s is possible. If the Pound pushes above C$1.76, the lows may be over. Something will have to change to make that move happen and we may look back at the current levels with fond memories.
Research Report by David Johnson
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