Jitters in the oil markets, coupled with the latest Brexit developments, caused sharp swings in the Pound Sterling to Canadian Dollar exchange rate over the past seven days.
Sharp Gains for Pound Sterling to Canadian Dollar on Transitional Brexit Hopes
GBP/CAD ended the week sharply on the decline, after it emerged that the UK may have to honour its financial commitments to the EU even after Brexit.
However, yesterday saw the GBP/CAD exchange rate gain over two cents after Prime Minister Theresa May commented that the UK could seek a transitional deal to soften the blow of Brexit. Speaking at the Confederation for British Industry (CBI) conference, the PM acknowledged that;
‘People don’t want a cliff-edge; they want to know with some certainty how things are going to go forward. That will be part of the work that we do in terms of the negotiation that we are undertaking with the European Union.’
Some have speculated that this could see the UK remain a member of the single market, while paying into the EU budget, for a number of years after the two year negotiation period. This, according to the Guardian, could see full Brexit delayed until 2024.
Oil Speculation Drives Canadian Dollar Volatility
The Canadian Dollar ignored reports of strong US oil stockpiles last week to trend bullishly on the hopes of a deal to cut production from the Organisation of the Petroleum Exporting Countries (OPEC). The ‘Loonie’ was also driven higher by the latest International Energy Agency (IEA) forecast, which predicted energy demand wouldn’t peak until 2040.
Friday’s consumer price index data put a ceiling on the ‘Loonie’s gains, however, thanks to its mixed results. Overall consumer price growth accelerated from 1.3% to 1.5%, but core growth slowed unexpectedly from 1.8% to 1.7%.
Crude oil has continued to fluctuate on the back of speculation regarding the OPEC meeting; not all of it has been positive, but overall, hopes for a deal drove the CAD/GBP exchange rate up to a near two-week high yesterday.
GBP/CAD Slumps; Public Borrowing Figures Disappoint Investors, OPEC Deal Likely
Today, government borrowing figures are worrying investors, despite coming in notably below forecast. As well as September’s figures being revised down, public sector net borrowing clocked in at -4.3 billion rather than the -6 billion forecast. However, this still puts the Treasury on track for a £10 billion overshoot of the target for the current fiscal year.
Meanwhile, the Canadian Dollar has been supported by yet more indications from OPEC officials that a production cut deal is close to being agreed. According to Ibrahim Waya, part of Nigeria’s OPEC delegation, ‘It is likely everybody will be on board by the end of the day.’
GBP/CAD Exchange Rate Forecast; UK Developments to Overshadow Canadian Data
Tomorrow’s Autumn Statement from Chancellor Philip Hammond will likely see marked volatility in the GBP/CAD exchange rate. Should the Chancellor promise additional spending, markets may not respond as positively as may have been forecast a few weeks ago. With the deficit still strong, markets may focus on the potential for fiscal stimulus to increase national debt, rather than its effects at stoking the economy.
On Friday, Q3 GDP figures for the UK will also be closely watched.
The only data scheduled for release from Canada over the next few days will be Thursday’s CFIB business barometer for November, although oil market sentiment could still see the ‘Loonie’ dominate Pound Sterling if the much-awaited OPEC production cut deal should materialise soon.