The pound has rallied higher against the Canadian dollar over the last week although it is hitting resistance at this higher point at 1.72 for the GBP CAD pair.
Much of the move higher has stemmed from a more upbeat outlook on Brexit with a deal between Britain and the EU expected. However, there are now two major issues which need to be agreed on which are proving extremely difficult to come to an agreement on.
The first issue is the Irish border which has long been of concern but it has been reported that the DUP which support the Government may look to vote down the budget if any of their red lines are crossed. It makes for what should be a very fraught few weeks for sterling exchange rates and could see the pound fall lower against the Canadian dollar. Political developments in the UK are likely to have a major impact on the GBP CAD pair.
USMCA agreement offers Canadian Dollar some stability
Meanwhile in Canada the USMCA which replaces NAFTA has brought some stability for the Canadian dollar now that an agreement has been reached by all the parties involved. Despite all the growing concerns of a slowdown in global growth due to the escalating trade wars the Canadian dollar is actually quite well supported against the pound. The commodity currencies generally perform less well in times of global economic uncertainty although my feeling is that in these markets the close trade association between the US and Canada should help support the Canadian dollar.
There is currently a good opportunity for selling Canadian dollars to buy pounds and depending on the performance of the global economy this could be set to change further. One of the reasons why the Canadian dollar is being supported is due to the actions of the Bank of Canada, having raised interest rates last year. With NAFTA out of the way the central bank may be tempted to restart monetary policy with further rate hikes which should strengthen the Canadian dollar further.
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