Will the GBP/CAD rate break 1.70, or has the high been reached?

The Canadian Dollar has been gradually getting weaker recently, the main driving force of this weakness being the outlook for the North American Free Trade Agreement (NAFTA) being compromised as a result of talks between Mexico, America and Canada breaking down. This resulted in the Trump administration complaining and could lead to America pulling out of the agreement.

As a commodity based currency, the Canadian Dollar is directly linked to exports. A breakdown in the North American Free Trade Agreement could result in higher tariffs being imposed on exports which would weaken the CAD and could see the GBP/CAD rate break and stay above 1.70. Another possibility if an agreement isn’t reached is that the Bank of Canada might stall on raising interest rates, which would in turn weaken the Loonie and could help push the 1.70 level permanently. The next interest rate decision is December 6th and I wouldn’t be surprised to see rates being held for now in Canada

Oil could be the CAD’s saving grace

With Canada being a major exporter of oil, the Canadian Dollar often performs well when oil prices rise; and with the price of oil reaching $58 per barrel, a level not seen since July 2015, you would expect to see the Canadian Dollar strengthen. However, one of the key pipelines to the USA from Canada – the Keystone pipeline – reported a spill and has been forced to cut supply.

This has pushed up the price of crude oil. But with the pipeline shut the Canadian Dollar has not benefitted. Additionally, the recent economic data from Canada is less than convincing. Retail sales rose just 0.1% in September against a forecasted rise of 1%. The Canadian economy seems to have halted at present and this doesn’t bode well for an interest rate hike any time soon. All eyes are now on Canadian GDP figures next week, and if these figures disappoint, I wouldn’t be surprised to see GBP/CAD exchange rates stay firmly above 1.70 for a while.