Political speculation kept the GBP CAD exchange rate declining for the past seven days, with Brexit remaining the key focus for investors.
Brexit Politics Causes Pound Canadian Dollar Exchange Rate Losses
The latest Brexit developments weighed heavily on GBP CAD last week. The Supreme Court heard the government’s appeal against the High Court judgement it must seek Parliamentary approval before triggering Article 50. No ruling will be made until next year, but the four days of legal arguments nonetheless unsettled investors.
MPs were forced to provisionally approve the March 2017 deadline in a non-binding Parliamentary vote in order to secure a chance to hear May’s Brexit plans in the near future. Although they could change their minds after hearing the government’s strategy, doing so would be politically contentious.
Meanwhile, the Bank of Canada (BOC) held interest rates at 0.50% in its latest policy meeting, as expected.
Canadian Dollar Edges Higher despite OPEC Delivering Long-Awaited Oil Production Cut
After months of speculation, U-turns and negotiation, OPEC has today finalised a deal to cut oil production. The Canadian Dollar hasn’t been able to rise too far on the news, however, as markets had already largely priced-in the potential cut.
According to Khalid al-Falih, Saudi Arabian Oil Minister;
‘I can tell you with absolute certainty that effective January 1, we’re going to cut and cut substantially to be below the level that we have committed to on November 30.’
The actual deal was agreed late in November, but whether or not the cut went ahead was dependent upon OPEC securing the involvement of oil-producing nations outside of the cartel. This means that the Canadian Dollar has already seen the strong positive market reaction to news of a cut, with the final piece of the puzzle doing little to move the currency higher. The agreement means 11 non-OPEC countries will collectively reduce their oil output by -558,000 barrels per day. OPEC had already agreed to cut production by -1.2 million barrels per day.
Pound Sterling, meanwhile, has been able to hang on despite disappointing economic forecasts from the British Chambers of Commerce (BCC). While the BCC has upgraded its 2016 projections by 0.3% to 2.1% and increased its 2017 outlook to 1.1%, the group expects to see 1.4% growth in 2018. This is down -0.4% on previous forecasts.
Providing the Pound with some support is a new YouGov poll which has suggested that over half of leave voters surveyed would not be prepared to take any hit to their finances from Brexit. Markets are seeing this as another blow to Theresa May’s plans to take the UK out of the single market in order to better control immigration.
GBP CAD Exchange Rate Forecast; US Fed to Steal the Show?
Tuesday will see plenty of Pound Canadian Dollar volatility thanks to the publication of UK November inflation data. If this shows the predicted acceleration in price growth, investors will likely sell the Pound on worries of prices rising above target.
On Thursday, the Bank of England (BoE) makes its final policy decisions of the year, with no changes expected to either interest rates or quantitative easing.
Canadian data consists of Thursday’s existing home sales figures and the latest Financial System Review from the Bank of Canada (BOC).
More pressing, however, will be Wednesday’s US Federal Reserve interest rate decision. Should the Fed hike borrowing costs as expected, the Canadian Dollar is likely to weaken; a stronger ‘Greenback’ makes vital cross-border trade less lucrative for Canadian exporters. This would see the Pound appreciating.