The Pound Canadian Dollar exchange rate soared last week as markets became increasingly resilient to Brexit-related news, turning instead to the growing expectation that the Bank of England (BoE) might be considering a rate hike as early as November.
As of today, however, the Canadian Dollar has taken the lead, spurred on by a surge in crude oil prices.
Beyond this, market attentions are now slowly turning to the fast-approaching speech from UK Prime Minister Theresa May, which will be taking place on Friday in the Italian city of Florence.
What can we expect for GBP CAD?
GBP CAD and the Brexit Deadlock
May is expected to travel to the European city to reveal details regarding her vision for the United Kingdom outside of the EU in an attempt to break the current negotiation deadlock.
The deadlock in question is regarding the European Commission’s refusal to discuss aspects of Brexit such as trade until elements of the ‘divorce’ are outlined to a satisfactory degree.
These include the decided figure for the divorce bill and the movement rights of EU and UK citizens post-Brexit. Brexit Secretary David Davis, on the other hand, is insistent that such talks take place alongside trade discussions. With both side refusing to budge negotiations have stagnated.
May’s speech comes amid anxieties that the negotiation progress will continue to remain too slow, ultimately resulting in a no-deal, or ‘cliff-edge’, Brexit – an event that contains a great deal of uncertainty, preventing investors and businesses from planning long term.
What is the PM Expected to Say about Britain’s Future Outside of the EU?
Whilst Downing Street has stated that the speech will be regarding the situation of Brexit negotiations so far and that it will ‘underline the Government’s wish for a deep and special partnership with the European Union once the UK leaves the EU’ what this means exactly remains to be seen.
Some economists speculate that she could use the opportunity to push for a breakthrough in regards to the divorce bill or movement rights; an attempt to remove the impasse.
Whilst it is unlikely that May will be able to break said deadlock, she might instead use the opportunity to try and reassure businesses, investors and citizens in general, perhaps by providing new information regarding London’s Brexit ‘plan’.
This would quell uncertainty, perhaps enabling businesses to plan slightly further ahead and hopefully give them the confidence to make significant investments.
Such an event would drive GBP CAD even higher, though to what extent remains questionable, especially in light of the Canadian Dollar capitalising on soaring crude oil prices and domestic inflation figures, which are soon due for release.
GBP CAD Exchange Rate Forecast; Inflation Data to Support BoC’s Move to Hike Interest Rates?
The outlook for the Canadian Dollar remains relatively sound with year-on-year inflation forecast to rise from 1.2% to 1.4% in August. Such a rise could further prompt the Bank of Canada (BoC) to consider raising interest rates perhaps faster than their current rate, something that would return even more demand to the ‘Loonie’.
Beyond this, crude oil continues to recover, holding five-month highs this Monday over optimism resulting from bullish demand forecasts from the Organisation of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA).
Kathy Lien, Director at BK Asset Management echoed this sentiment, stating:
‘Between the recovery in oil prices (crude hit $50 a barrel), solid Canadian data and a hawkish central bank that could raise interest rates one more time this year, investors still prefer the loonie and refuse to give up their long trades.’.
This can perhaps further account for today’s GBP CAD dip.
The ultimate effect of May’s Friday Brexit speech within this pairing will be dependent then on the performance of crude oil and Friday’s Canadian inflation figures, as if these prove positive then any good news regarding Brexit will likely be negated.
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