GBP/CAD Forecast: Pound to Canadian rates volatile on Oil and Brexit

Pound to Canadian dollar exchange rate volatile on Brexit developments

Pound to Canadian dollar exchange rates have been rather volatile as the market tries to second guess the potential outcomes from the various events that are driving the prices of these currencies. The main driver has been the vote of no confidence and news this week which saw Theresa May postponing her ‘meaningful vote’ on her Brexit plan.

Pound to Canadian dollar rates could remain in the 1.60s if Theresa May loses the vote since many of the candidates who might wish to take her place would possibly be seeking to reject the Brussels plan and we might see a disorderly exit from the EU. This would take us closer to a no-deal scenario and sterling might drop into the low 1.60s.

The expectation is that Mrs May might win her vote and this would see the pound rise quite sharply since no vote on her leadership could be called again for a year. The only other way Theresa May could be ousted would then be a motion of no confidence in the Government which would may ultimately lead to the Conservatives losing power.

The prospect of a second referendum and General Election could easily see the pound much lower in the coming weeks as investors desert the pound on the uncertainty.

Oil prices affecting the Canadian dollar

On the Canadian dollar side it is important to understand the price of Oil, this has been a major influence on the Canadian dollar since it is a major component of Canadian GDP, Gross Domestic Product, accounting for around 10%. Price fluctuations in the value of Oil will therefore have a big influence on the Canadian dollar and despite a recent decline in the price of Oil which had seen the Canadian dollar weaken, the weaker pound is currently dragging the pair down.

With the Bank of Canada recently holding their interest rate, the Loonie dollar did weaken but investors will now be looking to price in future hikes. I expect the Bank of Canada will need to be more accommodating in the future, particularly with their biggest trade partner, the United States potentially peaking in their economic growth.

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