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Canadian Dollar conundrum continues

Published: Wednesday 22 August 2018

  • ​​Brexit no deal fears put pressure on the Pound
  • Canadian Dollar depends on multiple developments
  • Guidance for Canadian Dollar sellers and buyers
What’s been happening with GBPCAD this month?

Both the British Pound and Canadian Dollar have their own set of troubles and a number of political and economic concerns are weighing on their strength.

The main driver of Sterling’s strength – or lack thereof – is Brexit. As negotiations continue, so, too, does market uncertainty. Despite economic data that generally sets a positive tone for the UK economy, the Pound has fears of a no-deal Brexit hanging over it; although any glimpse of a potential deal, regardless of detail, helps the British currency bounce back a little.

Brexit no deal fears put pressure on the Pound

Sterling has generally been slipping down against all its key currency pairings as Brexit no-deal fears intensify; in recent months, this trend against the Canadian Dollar has been a steep decline. A slight silver lining came from the EU’s Chief Negotiator, Michel Barnier, who said on 21st August that Brexit talks are moving to the final stages and, after the last set of negotiations, they are much further along in “defining common ground”. This helped lift the Pound a little against its key currency partners.

Canadian Dollar depends on multiple developments

The strength of the Canadian Dollar is subject to a number of factors – most notable currently are North American Free Trade Agreement (NAFTA) developments; oil prices (thanks to the CAD’s status as a commodity currency – around one quarter of Canadian exports are made up of energy products), which, having recently dipped, usually chip away at the Canadian Dollar; and the continued strength of the US Dollar from trade war threats and fears.
Canadian dollars - a array of notes - Halo Financial

What’s next for GBPCAD?

Will interest rates rise?

The next meeting of the Bank of Canada (BoC) takes place on 5th September. After Canadian inflation rose to the highest for seven years, chances of an interest rate increase at this next meeting are now being forecast at almost 60%. If interest rates do go up, this could serve to strengthen the Canadian Dollar. Will the BoC follow in the footsteps of friends in the UK and raise interest rates this time around?

Will a Brexit deal be reached?

The next round of negotiations on Brexit over the coming days could spell good fortune or further woes for Sterling. While the Pound seems to be slipping downwards against its Canadian currency counterpart, this rate is slowing; any positive Brexit deal news and no interest rate rise for Canada could reverse this direction and boost the Pound. On the other side of the coin, an interest rate hike from the Bank of Canada could boost the Canadian Dollar, and this could widen the GBPCAD gap.

Guidance for Canadian Dollar Sellers

Sellers of Canadian Dollars have seen a consistent move in their favour in the last three months and it would be easy to sit on your hands; however, now may a good time to reduce any short term exposure as we approach 1.6500. The last time the rate was this low it rallied to 1.8350, so it should certainly provide an element of support. A break below could see 1.6000 tested fairly quickly.
Guidance for Canadian Dollar Buyers

The rate has declined steadily in the last few months and is now approaching levels not seen since September 2017. It is probably worth leaving protection below 1.6500, as this should provide near term support. A failure to break below would suggest that the move is a little overdone and may see a rally back towards 1.7000.

GBPCAD - Research Report - August 2018

For more information, infographics and the latest currency insights, visit www.halofinancial.com/news