Canadian dollar rate strengthens against the pound
GBP has found itself marooned under 1.70 against the CAD for the past few weeks. The on-going Brexit drama and an upturn in the Canadian economy has caused investors to sell-off their GBP currency positions, which in turn has weakened the value of the pound and supported the CAD’s recent rise.
With the GBP/CAD pair now trading back under 1.69, investors will be looking at the Conservative party’s current leadership challenge and its subsequent result as a potential trigger in the market. Once a new Prime minister is in place, some of the current uncertainty surrounding the whole Brexit process will be removed and a clearer mandate may well to bring back a level of confidence to the pound.
With front-runner Boris Johnson looking increasingly likely to prevail, we could see a more hard-line approach towards the EU’s current offer, which was negotiated with out-going PM Theresa May.
Johnson has stated he will look to re-negotiate with Brussels over a new deal, but with the EU unlikely to offer much in the way of concessions, it is likely a no-deal exit will be brought back into focus. This is clearly not an outcome that suits either the UK or the EU, but if no alternative or middle ground can be found, then it is likely that the UK will have to leave without an agreement in place.
This very unsettling outcome has already proven in the past to significantly impact investors risk appetite for GBP. Whilst I’m not anticipating it to necessarily come to fruition, even the outside chance of no-deal will likely negatively impact the pound and in turn boost the Canadian dollar’s value.
Looking at the Canadian economy and the loonie as mentioned has been well supported of late, making gains against most major currencies including GBP.
There are however, underlying market concerns surround the Canadian economy. The fluctuation in oil prices (Canada’s largest export) and a slow-down in global demand, is negatively impacting Canada’s export driven economy. Commodity-based currencies like the CAD rely on global growth to boost investors risk appetite. Whilst this is of a course a concern, for the time being at least, the uncertainty and potential economic pitfalls associated with the UK are seemingly being viewed as the more unnerving of the two scenarios.
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