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Canadian Dollar Research Report

Published: Monday 04 April 2016

Overall, the Canadian Dollar has continued to strengthen as it rides the coat tails of recent USD strength. However, the Dollar struggled a little after the first Federal budget of Canadian Finance Minister Bill Morneau was relatively downbeat. While the new finance minister pledged a significant raft of investment and stimulus measures to support the domestic economy, some economists were unimpressed.

The Canadian Dollar tends to track general risk sentiments and despite the FED delivering a relatively dovish March statement, the overall outlook was an expectancy to raise rates in the US twice before the end of the year.

Sterling has continued to struggle after losing ground against all its major counterparts in March. Concerns over the EU referendum in June continue to weigh on the Pound and as a result, GBPCAD has dropped to as low as 1.85. Disappointing Consumer Price Index and Public Sector Net Borrowing figures also didn’t help the Pound’s case as its woes continue.

While oil prices have stabilised a little over the last month, they dropped below $40 a barrel today after Saudi Arabia said it would freeze production only, if other major producers followed suit. If recent progress collapses, this could weigh on the Canadian Dollar and as a result the GBPCAD rate would push back towards 1.90 again.

Unfortunately, for those who are looking to sell GBP and buy CAD, the outlook between now and the end of June remains bleak. We would expect to see the rate continue to fall to the low 1.80’s and possibly beyond. If you require funds in the next couple of months, we would suggest ‘biting the bullet’ and trading now. If you have a little longer to play with, we are expecting some kind of a rally on the Pound after the EU referendum. Markets have priced in Britain leaving which if they don’t, would see a strong push higher. If Britain decides to leave, while there would be a short term drop lower, it will take 2-3 years to implement Britain’s exit and therefore the Pound would likely return to ‘business as usual’ within a couple of months of the result.

Research Report by Michael Hart

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