The Pound to Canadian Dollar exchange rate extended its losses on Tuesday after its Monday tumble as a new set of Brexit worries and underwhelming inflation stats hit the Pound. The ‘Loonie’, on the other hand, was supported by a recovery in oil-prices. At the time of writing, GBP/CAD had lost over two cents since markets opened at the start of the week.
Pound (GBP) Undermined by Slowed Inflation and Resurfaced Brexit Uncertainty
Sterling was one of the best performing currencies in response to last week’s US election result.
Speculation and hopes of stronger trade ties between the UK and US under the Trump administration, as well as the perception that Trump’s win had taken market pressure off the Pound, were among the reasons for its bullishness. GBP CAD easily advanced as traders were put off making risky investments.
However, the Pound slipped on Monday in corrective trading and extended its selloff on Tuesday as investors reacted to Tuesday’s disappointing UK news.
A memo purportedly leaked from the UK government indicated that there was still no concrete Brexit plan as of early-November. With under five months to go until the proposed March 2017 date to activate Article 50, this left traders highly concerned.
Britain’s October Consumer Price Index (CPI) figures also disappointed, slowing to 0.9% year-on-year and letting down hopes that the Bank of England (BoE) may tighten monetary policy slightly.
Canadian Dollar (CAD) Bolstered by Buoyed Oil Price
The Canadian Dollar faced some of the worst market reaction to Trump’s election last week. With oil prices plummeting and markets rushing away from risky currencies, the oil-correlated ‘Loonie’ slumped, allowing Sterling to easily advance.
The opposite appeared to be true on Tuesday however. Monday saw a brief risk-rally as traders bought the Canadian Dollar up from its lows. With markets continuing to cool on the US Dollar on Tuesday, the ‘Loonie’ was bolstered by an increase in oil prices.
Recovering from the multi-month lows seen on Monday, prices of Canada’s most lucrative commodity jumped 2% on Tuesday due to hopes of lower shale output and renewed OPEC output cap speculation.
More oil-producing nations chimed in with support for OPEC’s proposed plan to cut oil output in an effort to stimulate demand and prices, which improved optimism for the commodity as well as the Canadian Dollar on Tuesday.
GBP/CAD Forecast: Low Risk Sentiment Likely to Continue
Even if prices of oil continue to recover with OPEC’s next meeting nearing, demand for the risk-correlated Canadian Dollar could continue to be limited by a generally risk-off air in foreign exchange markets.
With both the Brexit vote and now the Trump vote adding heavily to global uncertainty, risky currencies are facing numerous downside factors.
This means that GBP/CAD’s loss potential is limited in the coming weeks despite Brexit concerns returning to UK markets. As it stands, the exchange rate is unlikely to plunge back to mid-October’s multi-year lows in the short term.
However, Sterling’s upwards movements may be limited also. Investors may react to Wednesday’s UK employment datasets if they indicate some Brexit-influence, but Tuesday’s reported news that there were no concrete Brexit plans yet will continue to weigh on Sterling’s rally potential.
Later this week, Canada’s October Consumer Price Index (CPI) report will be published. If inflation fails to increase as expected, demand for the Canadian Dollar could be dented further, even if oil prices continue their steady advance.