Growing Odds of No-Deal Brexit Push Pound Canadian Dollar (GBP/CAD) Exchange Rate Lower
Confirmation that the UK government is prepared to breach international law over Brexit kept the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate on the back foot.
The deepening crisis over the government’s decision to alter elements of the previously agreed withdrawal agreement drove the GBP/CAD exchange rate to its lowest level since July.
With the issue of the Irish border and other key concerns, such as fishing rights, causing renewed tension between the two sides the chances of any imminent deal evaporated.
As markets brace for the possibility of the Brexit transition period ending without any deal this left Pound Sterling (GBP) to tumble lower across the board.
Signs of BOC Dovishness to Stir Canadian Dollar Jitters
The mood towards the Canadian Dollar (CAD) could sour this afternoon, however, in the wake of the Bank of Canada’s (BOC) latest policy announcement.
Although no change in monetary policy is expected at this stage CAD exchange rates may still come under pressure as markets react to the nature of policymakers’ commentary.
Signs of increasing caution within the central bank could weigh heavily on demand for the Canadian Dollar as worries over the economic outlook persist.
If the BOC shows a willingness to engage in further monetary stimulus measures before the end of the year this may limit the potential for further GBP/CAD exchange rate losses in the near term.
GBP/CAD Exchange Rate Vulnerable Ahead of UK GDP Data
Even so, market anxiety over Brexit still looks set to keep the Pound under pressure for the foreseeable future, barring a major breakthrough in talks.
GBP exchange rates could shed further ground on the back of the latest UK gross domestic product data, meanwhile.
Fresh evidence of the economy’s dramatic slowdown in response to the Covid-19 crisis would add to existing jitters over the strength of the UK outlook.
With the risk of a no-deal Brexit scenario increasing the UK economy looks set to remain under significant pressure in the coming year, limiting the potential for a sustained recovery.
As long as the NIESR monthly gross domestic product tracker indicates another sharp contraction in growth in August the mood towards the Pound may continue to sour.
Softer Oil Market Limits Potential for Canadian Dollar Gains
However, an increased sense of market risk aversion would also put pressure on the Canadian Dollar in the days ahead.
Growing uncertainty over the global outlook could keep the oil market in a bearish mood, limiting the appeal of the commodity-correlated CAD.
The general drop in demand for oil may leave prices biased to the downside for some months to come, diminishing the potential for the market to stage any major recovery this year.
Another increase in US crude oil stockpiles could add to the bearish mood, giving investors further reason to sell out of the softening Canadian Dollar.