Narrowing Tory Election Lead Extends Pound Canadian Dollar Exchange Rate Downtrend

May 26, 2017 - Written by John Cameron

STORY LINK Narrowing Tory Election Lead Extends Pound Canadian Dollar Exchange Rate Downtrend

Although there was some initial disappointment that the OPEC-led production limiting deal was only extended by nine months this failed to offer any particular support to the Pound Canadian Dollar exchange rate.

While oil prices weakened in the immediate wake of the news it was not long before demand for the commodity picked back up, helping to push the Canadian Dollar higher against its rivals.

Confidence in the ‘Loonie’ has been generally bullish thanks to the Bank of Canada’s (BOC) optimistic tone at its May policy meeting.

With policymakers taking a more positive view of the Canadian economy downside pressure on the GBP CAD exchange rate mounted, even though the BOC is not expected to return to a tightening bias in the near future.
Confidence in Sterling, meanwhile, weakened sharply as a result of the latest YouGov opinion poll, which only gave the Conservatives a five point lead over Labour.

As the odds of a Tory landslide netting the party with a substantially increased majority seem to be dwindling worries have started to weigh on the Pound once again.

Markets are concerned that anything less than a significant majority for Theresa May could jeopardise the upcoming Brexit negotiations, potentially making the process more turbulent and increasing the likelihood of the UK leaving the EU with no new deal in place.

As Neil Jones, head of hedge-fund sales at Mizuho Bank, noted:

‘Sterling correlates well with anything that shows a Tory majority and vice versa, so if you’ve got this situation where the majority closes right down, it may come to a critical level where it may not have a sufficient number of seats in the house. The market doesn’t like that.’

Demand for the Pound could remain limited if further opinion polls show a similar increase in Labour’s momentum, with political developments likely to continue weighing on GBP exchange rates in the coming weeks.
The latest GfK consumer confidence survey could put further downside pressure on Sterling, with forecasts pointing towards a fresh decline in sentiment.

As resilient consumer optimism and spending has helped to support the economy in the wake of the referendum result any weakness here could discourage investors further.

Volatility is likely in store for the Canadian Dollar, meanwhile, ahead of the first quarter gross domestic product results.

If Canada displays fresh signs of growth this could boost the ‘Loonie’ across the board, supporting the BOC’s more optimistic outlook.

Any disappointment, however, may offer the GBP CAD exchange rate a solid rallying point.

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TAGS: Canadian Dollar Forecasts