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Pound Canadian Dollar Exchange Rate Investors Brace for Tuesday?s UK Parliament Brexit Vote

January 14, 2019 - Written by Toni Johnson

Due to combination of Brexit hopes and weaker commodity price news, the British Pound to Canadian Dollar (GBP/CAD) exchange rate recovered at the end of last week. Despite broad Brexit uncertainties on Monday, the Canadian Dollar failed to capitalise due to weaker market appetite for riskier currencies.

After opening last week at the level of 1.7017, GBP/CAD spent most of last week tumbling and hit a one month low of 1.6772 on Friday morning. GBP/CAD rebounded from the low and recovered, closing the week around the level of 1.7031. At the time of writing on Monday afternoon, GBP/CAD trended near the level of 1.7060.

GBP Exchange Rates Avoids Losses amid Speculation of Brexit Delay

Could the formal Brexit day be delayed from its current planned date of March 29th? Markets certainly believe it is becoming highly likely.

As the date draws nearer with many major Brexit uncertainties remaining, analysts predict it may become necessary, even if UK Prime Minister Theresa May’s Brexit deal were to succeed in tomorrow’s UK Parliament vote.

With the UK running out of time to properly prepare for Brexit, EU leaders indicated they are prepared to delay the formal Brexit date until at least July.

UK Prime Minister May also refused to rule out a delay to Article 50 when asked on Monday.

Sterling has found some relief on the speculation that the Brexit process could be delayed, and delay speculation was the primary cause of the Pound’s gains at the end of last week.

However, Sterling’s gains have been limited and some analysts suggest that the ‘can being kicked down the road’ in this manner may not be good news in the end either. According to Jasper Lawler, Head of Research at London Capital Group:

‘But kicking the can too far will have negative consequences. It seems likely there simply will not be time to make the necessary changes in May's deal before 29 March, especially if there is a general election.

The resulting uncertainty would be one of the worst scenarios for businesses and the British economy.’

CAD Exchange Rates Unappealing as Global Trade Jitters Return

Concerns about global trade tensions and how they may be worsening slowing global growth made investors hesitant to buy risky trade-correlated currencies like the Canadian Dollar today.

Rather than on weak Canadian data, investors have been selling the Canadian Dollar due to global jitters weighing on risk-sentiment.

As a trade-correlated currency, the Canadian Dollar is sensitive to global trade concerns. Canadian Dollar investors are concerned by Canada’s current account deficit in trade, as well as weak prices in the commodities Canada exports including oil.

Prices of oil, Canada’s most lucrative commodity, have struggled to recover despite efforts from oil producers to help the commodity’s prices to recover.

The latest oil prices weakness came in reaction to news that China’s recent import and export stats had come in well below expectations. According to Stephen Innes from Oanda:

‘Oil prices are getting weighted down by the prospects of weaker economic growth in China,

This data drives home just how negative of an impact trade war is having on the Chinese and perhaps global economy.’

It followed last week, when higher risk-sentiment caused by US-China trade developments and lower Federal Reserve interest rate hike bets left the risky Canadian Dollar more appealing.

GBP/CAD Exchange Rate Forecast: UK Brexit Outlook to Drive Currency Markets

While developments in US-China trade negotiations and global economic growth remain a major concern for investors of risky trade-correlated currencies like the Canadian Dollar, this week’s Brexit developments may also influence risk-sentiment.

The UK Parliament vote on Brexit will take place on Tuesday evening.

UK Prime Minister Theresa May’s Brexit deal is not expected to succeed, but signs that it is finding stronger support among MPs is helping the Pound to strengthen slightly today.

Assuming the deal is blocked as analysts expect, the UK government and Parliament will attempt to find a way to proceed with the Brexit process.

Potential options include Pound-negative outcomes like a general election or No-deal Brexit, potentially giving Sterling more reason to fall and giving investors cause to become risk-averse.

Tuesday’s Canadian data, new motor vehicle sales from November, are unlikely to be influential. Canadian Dollar investors will be awaiting Friday’s Canadian inflation results or reacting to shifts in market risk-sentiment.
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