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Pound Canadian Dollar (GBP/CAD) Exchange Rate Steadies as Canadian Markets Remain Dovish Ahead of BoC Rate Decision

September 3, 2019 - Written by John Cameron

GBP/CAD Exchange Rate US-China Trade Deadlock Weighs on ‘Loonie’

The Pound Canadian Dollar (GBP/CAD) exchange rate steadied at around CA$1.608, with Canadian markets becoming concerned over the possibility that the Bank of Canada (BoC) could cut rates tomorrow.

Francesco Pesole, a Financial Strategist at ING, commented:

‘[W]e suspect the [BoC’s] statement will lean on the dovish side, stressing the downside risks stemming from trade tensions and the global slowdown and thereby paving the way for a rate cut in subsequent meetings’

The CAD/GBP exchange rate has also held steady as Canadian markets focus on global economic and political developments today, with the US-China trade talks apparently stuck in a deadlock, with the onus now on US President Donald Trump to improve relations between the two superpowers.

As a result, this has weighed on the trade-sensitive ‘Loonie’ today, as any signs of a global economic slowdown will weigh on the Canadian economy.

Wang Huiyao, an advisor to the Beijing Government, commented:

‘I think that for the U.S., they have to see the progress China is making and then probably work on that momentum to push China to be more open, rather than put China into a hard position… It’s unrealistic to change the whole set of laws in China — no country can do that, but we have actually passed a new law. So, I think there’s still grounds to work there to address all the concerns the U.S. may have.’

GBP/CAD Exchange Rate Steadies as UK Parliamentary Brexit Showdown in Focus

The Pound (GBP) fell against many of its competitors today, as UK politics remains in a state of fluidity ahead of the parliamentary showdown today, in which MPs will table legislation to prevent a no-deal Brexit on October 31.

Dominic Raab, the Foreign Secretary, was against the anti-no-deal bill, saying:

‘It's craftily designed to allow serial extensions, it would immediately require the UK to accept any EU conditions, however punitive, however harsh, and regardless of those conditions the price tag for the taxpayer would be £1bn each month. That is clearly designed to delay if not to cancel Brexit, and I think it scuppers the very positive progress we've had with the EU to get a deal.’

No-deal Brexit fears are also continuing to haunt markets, as progress between the UK and the EU appears to be dwindling as Prime Minister Boris Johnson continues to maintain a hard-Brexit approach.

Mr Johnson tweeted yesterday:

‘I want everybody to know, there are no circumstances in which I will ask Brussels to delay. We are leaving on 31 Oct, no ifs or buts.’

In economic news, August’s Markit Construction PMI fell deeper into contraction territory, sinking from 45.3 to 45.

Tim Moore, an Economics Associate at IHS Markit, said:

‘Domestic political uncertainty continued to hold back the UK construction sector in August, with survey respondents indicating that delays to spending decisions had contributed to the sharpest fall new work for over 10 years.’

GBP/CAD Outlook: Sterling Could Rise if a No-Deal Brexit is Successfully Challenged

Canadian Dollar investors will be awaiting tomorrow’s BoC rate statement, which is forecast to remain at 1.75%. However, any signs of dovishness in the rate statement could hold back the ‘Loonie’s gains tomorrow.

Sterling traders, meanwhile, will be awaiting tomorrow’s release of August’s Markit Services PMI. Any indication of a worsening services sector – which is the largest economic sector in the UK – could see the GBP/CAD exchange rate ease.

The GBP/CAD exchange rate could benefit if today’s parliamentary showdown is successful, enabling MPs to effectively delay Brexit, and thus providing enormous relief to UK markets.

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