Pound to Canadian Dollar Exchange Rate Tipped to FALL on Brexit / Oil Prices

August 27, 2017 - Written by David Woodsmith

STORY LINK Pound to Canadian Dollar Exchange Rate Tipped to FALL on Brexit / Oil Prices

The pound to Canadian dollar exchange rate could be set to tumble according to the latest forecasts by CBA on Friday 25th August.

The foreign exchange strategists suggest the pound sterling could be heading towards multi-year lows in the coming months.

• We recommend investors sell GBP/CAD at current levels (1.6025) with a target of 1.4900 and a stop loss at 1.6400.
• Real interest rate differentials suggests GBP/CAD can edge lower to near its 2010 low at 1.4900 over the next few months.
• Firm crude oil prices and Brexit-related political uncertainties also support a lower GBP/CAD.

Last week brought a clear decline in the GBP/CAD exchange rate, from an opening rate of 1.6208 on Monday to close in the region of 1.6047 on Friday.

Brexit Policy Papers Triggered Progressive GBP Weakness

The week-long Pound decline came amid a domestic data shortage, which left traders focusing on the continuing publication of Brexit ‘policy papers’.

Detailing the UK government’s ideal outcome to specific parts of the Brexit process, the papers have so far focused on the border with Northern Ireland, the involvement of the European Court of Justice (ECJ) and the potential payment of a sizable ‘divorce bill’.

With the ECJ issue, the government has pledged to take the UK out of the ECJ’s jurisdiction, despite this supposedly being a highly complicated endeavour. Analysing the specifics of UK efforts to move away from the ECJ was BBC Legal Correspondent Clive Coleman;

‘The key question is how much influence the ECJ would retain under a bilateral agreement with the UK. The EU will not sign up to an agreement which allows to UK to depart from EU law to the UK's advantage and the EU's disadvantage on things like state aid to companies, or emissions standards.

It will want a level playing field in trade and that will mean a lot of EU law as part of the agreement. The reality is that the more closely the Brexit trade agreement replicates EU law, the greater the influence of the ECJ will be’.

The implications of this are that the government risks a sharp downturn in popularity, as it could be seen as a dilution of core Brexit principles.

Fears of this outcome were also sparked by foreign secretary Boris Johnson, who seemed to have come to terms with the possibility of a Brexit ‘divorce bill’;

‘We will certainly have to meet our obligations. Some of the sums that I’ve seen seemed to be very high [but] we will meet our obligations. We are law-abiding, bill-paying people. The UK has contributed hundreds of billions [to the EU] over the years.

I’m not saying that I accept [EU chief Brexit negotiator, Michel] Barnier’s interpretation of what our obligations are. But I’m certainly saying that we have to meet our legal obligations as we understand them and that’s what you’d expect the British government to do’.

This has been a two-sided statement – on the one hand, it could mean another wave of dissatisfaction and lost confidence among UK businesses and consumers. The silver lining, however, is that conceding to pay a ‘divorce bill’ may result in the UK being treated more favourably in negotiations.

Canadian Dollar Supported by Hurricane Bumping Up Crude Oil Costs

Early on last week, Canadian retail sales figures for June came out. On the month, base sales slowed but sales without vehicles included rose out of a negative range. Adding to the positivity, annual sales remained high instead of declining as predicted.

These facilitated the CAD GBP exchange rate rise, along with a late-week rise in crude oil prices. The cost of the commodity rose due to the movement of Hurricane Harvey towards Texas, one of the US’s key oil-producing states.

As well as residents fortifying their homes against the storm, oil rigs were also evacuated as a precaution.

Weekly GBP to CAD Ex change Rate Forecast: Sterling Turbulence Possible on Borrowing Stats

This week, the Pound could be affected by Wednesday’s lending data as well as Thursday’s consumer confidence measure.

Levels of lending and borrowing are broadly tipped to remain high in July, which could weaken the Pound and lead to concerning comments from the Bank of England (BoE). As borrowing rises, the risks associated with raising UK interest rates increases.

A GBP CAD decline could prove short-lived, however, if Thursday’s confidence score improves as expected.

Upcoming Canadian ecostats will cover the level of GDP growth reported in the second quarter. Projections are for lower growth during the quarter; such a result could push the Canadian Dollar down against the Pound.

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