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2017

Canadian Dollar Research Report

Published: Tuesday 07 February 2017

  • UK Parliament to cast final Brexit vote this week
  • Unstable oil prices trigger huge swings of volatility
With the continuing uncertainty about the future of a post-Brexit UK, the Pound started the first month of the year poorly.  Down at four year lows of 1.5760, GBP/CAD recovered to highs of just over 1.66 towards the middle of the month and has now settled in the middle this range around 1.62. With such huge swings of volatility, buying and selling orders around 1.6450 and 1.60 respectively could be realistically achieved over the coming months.
 
Sterling’s current drop comes amid worries about the future economic relationship between UK and the European Union.  According to Italian Foreign Deputy Mario Giro, EU member states may try to ‘poach’ City of London financial services after Brexit, as a result of increased uncertainty among banking institutions about their viability to remain within the United Kingdom.
 
GBP-CAD losses were exaggerated due to the unstable price of oil. Prices of oil, Canada’s most lucrative commodity, are trading higher for the third consecutive session, as traders anticipate an ongoing cut in production from The Organization of the Petroleum Exporting Countries (OPEC) countries.  Ongoing conflict between the Trump administration and Iran may increase the price of oil and further strengthen CAD. However, concerns about stricter US trade and border controls, especially since Trump’s executive orders, have also kept the demand for risky currencies limited, as investors head for safer options. 
 
Marked as ‘Super Thursday’, the Bank of England (BoE) decided, as expected, to hold interest rates at 0.25 however while sharply raises its 2017 growth outlook. It expects the economy to grow 2% in 2017, up from a November forecast of 1.4%, which itself was an upgrade from the 0.8% forecast made in August. GBP-CAD fell 1.2% as a result. This is largely as the markets are interpreting the report as indicating the bank is in no rush to raise rates. The markets are currently forecasting a 50% chance of a rate hike this year and almost certain odds on one for 2018.   
 
Canadian Trade Balance and Building Permit numbers are key for GBP-CAD volatility. We expect a raft of data for Canada this week, including housing and market data, the business sentiment index, and employment data, which is likely to show better results than last month’s. The big one to watch will be, however, on Wednesday 8th, when the UK Parliament cast their final vote For or Against the Bill that gives Theresa May authority to active Article 50, triggering our two-year exit from the EU.
 


Research Report by Joe De Berniere

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