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Pound v Canadian Dollar Exchange Rate Tumble Slows as Investors Await Bank of Canada (BoC) Decision

January 9, 2019 - Written by Minesh Chaudhari

For most of the week so far, the British Pound to Canadian Dollar (GBP/CAD) exchange rate has tumbled as investors anticipate developments in US-China trade negotiations, and markets bet that the Canadian Dollar may have a stronger year ahead of it following a mixed performance in 2018.

The first week of 2019 saw notable losses for GBP/CAD, as the pair slumped from 1.7310 to 1.7017. This week, it appears that GBP/CAD may have even further to fall. GBP/CAD has already lost over a cent since markets opened this week.

While GBP/CAD’s losses slowed today, in anticipation of the afternoon’s Central Bank news, the pair continues to trend near a weekly low of 1.6837. This marked the worst GBP/CAD level since mid-December.

GBP Exchange Rates Fail to Hold Ground as Brexit Uncertainties Persist

The Pound has seen some limited support in recent sessions, on market hopes that the UK can avoid crashing out of the EU in a worst-case ‘no-deal Brexit’ scenario.

A cross-party group of UK politicians tabled an amendment to limit the UK government’s funding in the event that it seeks out a ‘no-deal Brexit’, and the amendment passed on Tuesday night.

The news indicated that the majority of UK Parliament was against a ‘no-deal Brexit’, which was slightly reassuring. However, the amendment was ultimately perceived as being unlikely to have a big impact on the chances of a ‘no-deal Brexit’.

If UK Prime Minister Theresa May fails to find enough support to pass her negotiated UK-EU Brexit deal through UK Parliament next week, the Brexit process will be thrown into uncertainty, and unless a solution is found a ‘no-deal Brexit’ becomes the default outcome.

UK Prime Minister May continues to struggle to secure domestic support for her deal today.

With the UK Parliament debate over her deal resuming, investors are even more hotly anticipating next week when the deal will finally be voted on in UK Parliament.

Sterling’s movement was little-impacted by Wednesday’s UK data. The final Q3 labour productivity report fell from 0.5% to -0.4% as projected.

CAD Exchange Rates On the Up amid Bank of Canada (BoC) Interest Rate Hike Bets

Following a mixed performance in 2018 due to weaker oil prices and the strength of its rival, the US Dollar (USD), many analysts expect the Canadian Dollar to strengthen in 2019 – and this is making the currency an appealing buy this week.

While the Federal Reserve is expected to end its interest rate hike cycle this year amid slowing global and US growth, expectations that the Bank of Canada (BoC) has more to be hawkish about reportedly surprised investors.

While the BoC is expected to leave Canadian monetary policy frozen today, the tone the bank takes regarding its outlook for future monetary policy could be influential.

According to Mazen Issa, Senior FX Strategist at TD Securities:

‘The macro outlook, while it does suggest a deceleration in economic growth, it is not a dynamic that threatens the Bank of Canada trajectory,

We still expect to see a couple of hikes later this year, just back-loaded.’

Market optimism towards the Canadian Dollar has also risen this week as prices of oil, Canada’s most lucrative commodity, have recovered in recent sessions following poor performance towards the end of 2018.

Hopes that US-China trade talks will see optimistic developments soon are also bolstering market demand for oil and the relatively risky trade-correlated Canadian Dollar.

GBP/CAD Exchange Rate Forecast: Bank of Canada (BoC) Decision and Trade Developments in Focus

This afternoon’s biggest event for the Pound to Canadian Dollar exchange rate will be the Bank of Canada’s (BoC) January policy decision.

The bank is not expected to make any changes to Canada’s monetary policy, but the tone the bank takes regarding its outlook for this year could prove influential if it surprises investors.

For example, if the bank is more dovish than expected GBP/CAD could be in for gains for the remainder of the week.

The risky trade-correlated Canadian Dollar is also likely be influenced by any surprising developments from the Federal Reserve’s meeting minutes, due for publication this evening.

Of course, developments in US-China trade tensions and negotiations are likely to remain influential for the risky Canadian Dollar too.

As for data, Canadian housing stats on Thursday and UK growth figures on Friday could also cause some late-week movement in the Pound to Canadian Dollar exchange rate.
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