Update 17:00 GMT 28/11/2017:
After edging higher for most of Tuesday morning, the Pound Canadian Dollar exchange rate briefly plunged on Tuesday afternoon and saw volatile trade as investors digested the day’s news.
As Pound investors became increasingly concerned about how Irish border disagreements could impact Brexit negotiations, Canadian Dollar traders reacted to Bank of Canada (BOC) news.
GBP CAD trended near 1.6950 in the immediate aftermath of the BOC press conference. BOC Governor Stephen Poloz indicated it was still too soon to tell how the recent rate hikes had affected Canada’s economy and implied the bank would remain in ‘wait and see’ mode for now.
[Published 10:25 GMT 28/11/2017]
The Pound Canadian Dollar exchange rate surged on Monday evening despite the latest Brexit concerns weighing on Sterling. Poor commodity price news, underwhelming Canadian ecostats and anxiety for an upcoming Bank of Canada (BOC) press conference have made the ‘Loonie’ unappealing.
GBP CAD advanced from around 1.6867 to 1.6945 last week and climbed over half a cent on Monday morning. As of Tuesday morning the pair was trending near a high of 1.7027 – its best level in almost a week.
Pound (GBP) Strength Limited by Brexit Uncertainties
The Pound did advance against the Canadian Dollar on Monday, but this was more due to Canadian Dollar weakness than any specific bullish movement in Sterling.
Sterling movement was mixed with the currency fluctuating as investors digest the latest Brexit news.
While recent UK ecostats have largely failed to impress traders, market hopes for UK-EU Brexit negotiations to see major developments in December had kept the Pound afloat.
Complications remain though. It emerged over the weekend that the EU and Ireland were not satisfied with Britain’s proposals for handling the border between Ireland and Northern Ireland.
Both nations desire to keep a soft border, but UK International Trade Secretary Liam Fox indicated the UK government could not finalise its plans for the border until UK-EU trade talks take place.
On top of this, Ireland is seeing separate domestic issues amid fears the government could fall and that a snap election may need to be held.
With UK ecostats unlikely to inspire much change in the Pound outlook over the coming days, the Pound Canadian Dollar exchange rate is more likely to be influenced by Brexit developments and the Canadian Dollar.
EU officials have given the UK government until 4 December to prepare its UK-EU divorce offer, including the ‘divorce bill’ price as well as details on plans the Northern Ireland border and EU citizen rights.
If the UK government fails to meet this deadline, it could mean another delay in UK-EU trade negotiations which would worsen the Pound outlook in the longer-term too.
Further complications between Ireland and Northern Ireland would likely be bad news for the Brexit process, so developments there are likely to take focus in Pound trade in the coming days.
Canadian Dollar (CAD) Investors Anticipate Bank of Canada (BOC) News
The Canadian Dollar was sold on Monday as investors reacted to a drop in oil prices. Oil is Canada’s most lucrative commodity so the ‘Loonie’ is often correlated to oil movement.
Oil prices recently hit their best levels in two years, which had helped the Canadian Dollar to hold its ground despite underwhelming Canadian data last week. However, as oil prices dropped 1% from these highs the Canadian Dollar weakened.
Still, the Canadian Dollar continued to drop on Tuesday despite fresh bullish oil forecasts. Some analysts speculate that oil prices could climb to as much as US$80 in 2018.
The continued Canadian Dollar weakness is more to do with a lack of domestic demand, as well as market uncertainty about upcoming news.
Recent Canadian data has been disappointing, with Canadian retail sales stats coming in well below expectations and indicating that Canada’s growth rate has not been as strong towards the end of the year as expected.
This is partially why investors are strongly anticipating a Bank of Canada (BOC) press conference and speech from BOC Governor Stephen Poloz on Tuesday.
If the BOC hints at its plans for monetary policy in 2018, the Canadian Dollar is likely to react. If the bank takes a relatively hawkish stance despite recent underwhelming Canadian data the ‘Loonie’ could recover much of its recent losses.
On the other hand, if the bank expresses concern about Canada’s slowing growth, GBP CAD could easily register more gains as the Canadian Dollar outlook worsens.
Data due later in the week could inspire Canadian Dollar movement too. Key Canadian growth rate data from September and Q3 overall, as well as Canada’s November job market data, will be published on Friday.
GBP CAD Interbank Rate
At the time of writing this article, the Pound Canadian Dollar exchange rate trended in the region of 1.7020. The Canadian Dollar to Pound exchange rate traded at around 0.5870.