Despite some deep-rooted concerns surrounding the Canadian economy, GBP has found itself marooned under the interbank rate of 1.70 against the CAD over the past few weeks.
|Currency Pair||% Change (Month)||Difference on £200,000|
The on-going Brexit drama, coupled with the current political uncertainty in the UK, has transpired to push the Pound below this key threshold with GBP/CAD interbank rates falling to a low of 1.6777 during Tuesday’s trading. Whilst GBP found some welcome support around this level, helping to move the pound back above 1.68, any major realignment back towards 1.70 looks unlikely over the coming days.
With the Conservative leadership race starting to take shape, there is a belief that a clearer mandate led by a Brexiteer frontrunner, could give the markets a clearer indication of where the UK economy may be heading during this uncertain period.
With frontrunner Boris Johnson looking increasingly likely to prevail, we could see a more hard-line approach towards the EU’s current offer, which was negotiated with out-going PM Theresa May.
This may in turn help curb further losses for the pound in the short-term and with the Canadian economy struggling due to its heavy reliance on global growth and the slowdown in this sector, there is still the potential for a prospective upturn in GBP fortunes over the coming months.
The fluctuation in oil prices (Canada’s largest export) and a slow-down in global demand, is also negatively impacting Canada’s export driven economy.
Commodity-based currencies like the CAD rely on global growth to boost investors' risk appetite. Coincidently the deputy governor of the Bank of Canada (BoC) Lawrence Schembri was speaking earlier this week about how Canada’s flexible exchange rate has actually helped the Canadian economy adjust to external shocks, primarily changes in commodity prices.
Whilst any sudden fluctuations in market variables such as oil prices, or prospective interest rate by the US FED is a cause for concern, for the time being at least, the uncertainty and potential economic pitfalls associated with the UK are seemingly being viewed as the more unnerving of the two scenarios.
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