November 5, 2020 - Written by David Woodsmith
STORY LINK GBP to CAD Exchange Rate Attempts Rebound as Oil Weakness and US Uncertainty Caps CAD
Investors have been buying the British Pound to Canadian Dollar (GBP/CAD) exchange rate back from its lows again today, as the US 2020 Presidential Election continues to develop. While the Pound has been hit harder by risk-aversion this week, the Canadian Dollar is being weighed by other factors like oil prices and US policy uncertainty today, which is helping Sterling to recover. Focus on the US election is likely to remain the focus for Pound and Canadian Dollar exchange rate investors in the coming sessions.
Since opening this week at the level of 1.7250, GBP/CAD has been trending lower. Sterling’s attempts to avoid losses have been limited, as yesterday saw the pair tumble even lower and touch on a fortnight low of 1.6996.
While today is seeing another rebound attempt in GBP/CAD, the pair’s gains are fairly limited overall. At the time of writing, GBP/CAD is trending in the region of 1.7142 - still over a cent below the week’s opening levels.
GBP Exchange Rate Appeal Limited by Political Uncertainty and BoE Dovishness
Various factors have kept the Pound unappealing this week.
At the beginning of the week, investors reacted to news that Britain was about to head into a second national lockdown. Then, as the US 2020 Presidential Election unfolded, the Pound was hit even lower by market risk-aversion.
Coronavirus fears and uncertainty around UK-EU Brexit negotiations meant that the Pound was hit particularly hard by the market’s US 2020 Presidential Election jitters. This combination of factors kept the Pound tumbling for much of the week.
Strength in the Canadian Dollar also played an important part in GBP/CAD losses.
While hopes of a clear US election result have boosted the Pound slightly today and enabled a rebound, the Pound’s appeal is being limited by market concern about Britain’s own outlook.
The Bank of England (BoE)
has expanded its quantitative easing (QE) program and lowered its economic forecasts for Britain as the nation comes under a fresh coronavirus lockdown.
On top of this, UK Chancellor Rishi Sunak has indicated that the furlough scheme will last beyond December, into March 2021. This has caused concerns of a longer lockdown.
According to Peter Dixon, Senior Economist at Commerzbank, the BoE may even need to consider negative interest rates next year:
‘The BoE did not give any further insight into its thinking on negative interest rates, having set out its views in the August monetary policy report.
Futures markets continue to edge closer to pricing in negative rates although they are not expected to come into effect before next summer.’
CAD Exchange Rate Appeal Limited amid Market Risk-Aversion and Weak Oil
The Canadian Dollar saw stronger demand at the beginning of the week.
Bets of a clear US Election win for Democrat Joe Biden, as well as bets that it could lead to a bigger coronavirus relief package, helped support the Canadian Dollar. This is due to Canada’s close relation with the US economy.
Even as the results of the US 2020 Presidential Election indicated a tighter than expected race, the Canadian Dollar found support on stronger oil prices. Oil is Canada’s biggest export, so CAD often sees a correlation to oil prices.
Oil prices have weakened today though, and bets of a stronger US coronavirus package are unravelling. On top of this, markets are anxious about Canada’s trade outlook amid the coronavirus pandemic.
According to Benjamin Reitzes, Canadian Rates and Macro Strategist at BMO Capital Markets:
‘Canada’s trade gap has widened notably through the pandemic,
With energy prices remaining low, it’s going to be difficult to meaningfully narrow the gap in the short term.
On the bright side, the rise in overall trade activity bodes well for the economy in September,’
This is leading to a weaker Canadian Dollar today, which is making it easier for GBP/CAD to climb away from lows.
GBP/EUR Exchange Rate Forecast: Focus on US 2020 Presidential Election Persists
Results for the 2020 US Presidential Election continue to trickle in, and markets hope to have a clearer picture of the outcome by the end of the week.
The outcome is sure to have a big impact on global forex markets. A clear win for Joe Biden will make investors feel safer taking risks, so the Pound is likely to recover in this instance.
Oil prices may also rise, so volatility in both Sterling and the Canadian Dollar may soften.
On the other hand, if the race tightens further it will lead to fresh fears of the result being contested, taken to court or sparking civil unrest, uncertainty is only likely to worsen.
Safe haven demand will rise, and the Canadian Dollar is more likely to benefit from this than Sterling due to its correlation with the US Dollar.
Aside from US election news, the Canadian Dollar could also be influenced by Canada’s October job market report, due tomorrow.
The report will give investors a better idea of how Canada’s economy is weathering the coronavirus pandemic, and could influence the Pound to Canadian Dollar exchange rate’s late-week movement.
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TAGS: Pound Canadian Dollar Forecasts