Resurgent Worries Over Brexit Tank Pound Canadian Dollar (GBP/CAD) Exchange Rate
Fresh fears over Brexit saw the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate slumping sharply on Wednesday.
Comments from UK chief negotiator David Frost reaffirmed the government’s hard line on the matter and opposition to any extension of the current deadline.
As a result, with only one month left to reach a deal before a reversion to World Trade Organisation (WTO) terms becomes inevitable the mood towards Pound Sterling (GBP) widely soured.
A persistent lack of progress towards a deal fuelled fears over the outlook of the UK economy, with the disruption from the Covid-19 crisis already weighing heavily on growth momentum.
With investors still pricing in high odds of a potential Bank of England (BoE) interest rate cut there appeared little reason to support the Pound at this juncture.
Threat of Increased Russian Oil Production Drives Canadian Dollar Down
Even so, the appeal of the Canadian Dollar (CAD) also weakened as reports of an increase in Russian oil production dragged prices sharply lower.
With Brent crude prices down nearly 5% on the day’s opening level CAD exchange rates saw little upside potential.
Fresh geopolitical tensions over Hong Kong also fuelled a sense of market risk aversion, although this was not enough to shore up the GBP/CAD exchange rate.
Demand for the Canadian Dollar could weaken further on Thursday if March’s average weekly earnings data fails to impress.
Evidence that wage growth started to ease even before the impact of the Covid-19 pandemic hit could increase worries over the health of the Canadian economy.
If markets see increasing reason to brace for further dovishness from the Bank of Canada (BOC) the Canadian Dollar could fall further out of favour with investors in the near term.
Weak Canadian Gross Domestic Product to Offer GBP/CAD Exchange Rate Rallying Point
The GBP/CAD exchange rate could also find a rallying point ahead of the weekend thanks to the release of the first quarter Canadian gross domestic product report.
Forecasts point towards a sharp slowdown in growth in the first quarter, as well as in March’s monthly GDP reading.
As long as the Canadian economy demonstrates a significant loss of momentum thanks to the initial hit of the Covid-19 lockdown the Canadian Dollar looks set to trend lower across the board.
A -9% monthly decline in growth could weigh heavily on CAD exchange rates, exacerbating existing worries over the economic outlook and the impact of the global trade decline.
Unless growth prints significantly better than forecast the diminished appeal of the Canadian Dollar could see the GBP/CAD exchange rate return to a positive footing on Friday.
However, any fresh surge in market risk appetite could still encourage CAD exchange rates to regain some of their momentum.