After the UK voted to leave the European Union the price of crude oil crashed as it tracked global equity losses. However, the Canadian Dollar continues to find support as a result of surging gold prices and reduced expectations of a near-term Federal Reserve cash rate increase.
GBP Exchange Rates Extend Losses on Brexit Fallout
The UK’s historic decision to leave the European Union sent shockwaves across global markets. Sterling exchange rates dived to fresh multi-year lows, with expectations of a sustained depreciation over the coming weeks.
In addition to the uncertainty caused by the need to completely restructure the economy, the resultant political fallout is likely to weigh heavily on trader confidence for some time to come.
Following the result of the referendum Prime Minister David Cameron resigned. Crucially, he left his post without triggering Article 50 which is the EU’s mechanism for kick-starting a country’s lawful wish to be ejected from the organisation.
That has left the job to whoever is chosen to take over as Tory leader. That means there could be delays to triggering Article 50 which would lead to an even longer period of uncertainty for the UK.
There is also a high chance that there will be a snap general election called so Brits can decide which party takes the helm of a very different looking Britain.
Over the coming week domestic data is unlikely to have any major impact. This is not only because market sentiment is dictating currency movement, but because the data will now be considered obsolete given that it reflected a pre-Brexit Britain.
CAD Exchange Rates Advance on Expected Fed Rate Hike Delays
In the immediate aftermath of the UK’s Brexit, risk-correlated assets struggled for obvious reasons. However, the Canadian Dollar managed to advance versus its major peers in the early stages of this week.
The ‘Loonie’ (CAD) depreciation is mostly the result of speculation that US Dollar overvaluation will see long-term delays to a Federal Reserve cash rate increase. Such is the demand for the Dollar amid current market turmoil, some fear that the Fed will have no choice but to ease policy.
Crude oil prices have declined sharply in line with global equity markets. This limited ‘Loonie’ gains, although a general rise in the commodities market saw reduced fallout from crude losses.
Gold prices have surged thanks to safe-haven demand. As the world’s fifth-largest exporter of bullion, the rise in prices has also been highly supportive for Canadian Dollar exchange rates.
Whilst domestic data across the board is expected to have a reduced impact with market sentiment driving forex volatility, next Thursday will see the publication of Canadian Gross Domestic Product, which has potential to cause CAD changes.
April’s annual Canadian GDP is expected to show 1.4% growth, bettering the previous figure of 1.1%.
Over the past seven days, the Pound Sterling to Canadian Dollar (GBP CAD) exchange rate has trended within the range of 1.7162 to 1.9110.