GBP CAD Exchange Rate Holding Weak Position on Brexit Fallout

 

Like all Sterling based exchange rates, the GBP CAD exchange rate is holding a comparatively weak position after the Pound dived in response to the UK’s Brexit vote. Now that the dust has settled, however, Sterling has recovered some of its losses versus its Canadian counterpart.

Brexit Continues to Dominate Trader Focus

Ahead of the UK’s historic decision to exit the European Union, the Pound Sterling to Canadian Dollar exchange rate reached a high of 1.91. In the immediate aftermath of the referendum result, however, GBP CAD dropped to 1.75.

Sterling saw heavy losses across the board amid uncertainty as to how the UK would negotiate an amicable exit, and how the political landscape would evolve.

In the days following, the GBP CAD exchange rate dropped to its lowest level since late 2013 at 1.71.

Immediately following the Brexit vote Prime Minister David Cameron announced his resignation. Crucially, he failed to meet his promise of triggering Article 50 of the Lisbon Treaty immediately. This added to the atmosphere of uncertainty, with fears that long-term delays will see the frayed UK-EU relationship tear completely.

The British political landscape is in complete turmoil with the Tory party scrambling to find Cameron’s replacement, and the Labour Party having an overwhelming vote of no confidence in leader Jeremy Corbyn.

The British Pound recovered some of its losses versus its peers as traders took advantage of Sterling’s comparatively weak trade weighting. The GBP CAD exchange rate advanced from the low of 1.71 to currently trend in the region of 1.74.

As we look ahead, predicting Sterling movement has become increasingly complicated given the UK’s clouded political and economic outlook. In addition, domestic data is not expected to be hugely impactful given that it will relate to a pre-Brexit Britain for some time to come.

Canadian Dollar Exchange Rates Thought to be Insulated against Brexit Fallout

Although the UK’s decision to Brexit sent shockwaves through financial markets, Canada’s somewhat loose ties to Europe is thought to be a good insulator against the fallout.

In the immediate aftermath of the vote, however, the ‘Loonie’ (CAD) softened versus many of its peers as market uncertainty caused traders to flock to safe-haven assets. However, the resultant US Dollar appreciation may well be supportive of the Canadian Dollar in the longer-term as the Federal Reserve is now expected to delay a benchmark interest rate increase until 2018 at the earliest.

Oil prices also cooled significantly in the aftermath of Brexit. As one of the world’s foremost crude exporters, the falling price weighed on Canadian Dollar demand. It is important to remember that Canada is still recovering from the huge wildfire that tore through the oil sands region. This is expected to have a long-term detrimental impact on Canada’s export profits.

As we look ahead, the Canadian Dollar is far more likely to be responsive to domestic data publications compared to Sterling. Next Friday will see the publication of June’s Unemployment Rate and Net Change in Employment. Labour market data usually triggers currency volatility given its significance in economics.

US data will also be of interest given that US Dollar appreciation could see further delays to a Federal Reserve rate hike.

Market sentiment will also play a hand in ‘Loonie’ movement, especially as risk-off trade usually coincides with crude oil price declines.

Over the past week, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was trending within the range of 1.71663 to 1.9110.

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