The Pound to Canadian Dollar exchange rate advanced again on Tuesday after striking its best levels since the close of 2016 on Monday.
Risk-sentiment remained low and investors became a little more optimistic about Brexit, allowing GBP/CAD to test 1.68 once again. The pair has gained over a cent already this week on faltering oil prices and US Dollar weakness.
Pound (GBP) Firms as Hopes Rise for Brexit Deal
The Brexit process is set to formally begin tomorrow, putting the UK’s exit from the EU firmly back in the spotlight.
On Tuesday it emerged that the UK government may be backing away from its previous ‘no deal’ threats, which bolstered demand for the Pound as concerns faded that Britain could leave the EU with nothing.
In her Brexit speech in January, UK Prime Minister Theresa May indicated that she would rather see Britain become a deregulated offshore tax haven than get a bad deal from the EU.
This was intended as a threat to EU leaders who may try to undermine Britain’s post-Brexit success, but according to European diplomats the government has since come to regret this stance.
Sterling also benefitted on Monday from a risk-off rally. Investors looking for relatively safe assets sold the risky Canadian Dollar in favour of British government bonds, which are priced in GBP.
Canadian Dollar (CAD) Slumps on Low Risk-Appetite
The Canadian Dollar has lacked the support needed to stand against Sterling’s gains this week and slumping risk-sentiment has weakened the ‘Loonie’ further.
Monday saw global markets react to US President Donald Trump’s failure to find enough support for his healthcare bill despite the Republican majority in Congress, which worsened concerns that he would also be unable to pass his proposed fiscal policy plans.
As uncertainty about the outlook of the world’s largest economy increased, investors poured out of risky currencies like the Canadian Dollar.
The oil-correlated ‘Loonie’ has also been weakened by recent oil price news.
While bets are high that OPEC and cooperating oil producers will agree to cut oil production for an additional six months, concerns remain that this will not be able to solve the persistent oil supply glut issues that are keeping prices low.
GBP/CAD Forecast: Brexit Begins Wednesday
The UK government is on track to activate Article 50 and begin the formal Brexit process before the end of March.
Analysts are torn on whether or not the Brexit process finally beginning will have a negative effect on the Pound. Some analysts argue the Brexit is not yet fully priced in, but others have suggested that when the Brexit process actually begins, uncertainty will fade slightly which could actually benefit Sterling.
Wednesday will also see the publication of relatively influential UK data. February’s consumer credit and mortgage approvals results will be published.
Canada’s economic calendar will be relatively quiet until later in the week, meaning risk-sentiment and oil news could continue keeping the ‘Loonie’ weak.
Thursday will see the publication of Canada’s February industrial product price report, followed by the nation’s key January Gross Domestic Product (GDP) figures on Friday. Britain’s final Q4 2016 GDP will also be published before the weekend.