President Trump Pushes for NAFTA Deal in Two-Weeks – Canadian Dollar (CAD) Exchange Rate Outlook Bolstered
The Pound Canadian Dollar (GBP/CAD) exchange rate came under pressure on Tuesday as markets reacted to news that US President Donald Trump has pushed for a NAFTA deal to be struck within two weeks, fostering hopes that a deal will be reached when trading partners convene at the Summit of the Americas on the 9th of April.
The US President also asserted that the Mexican leadership is doing very little to prevent illegal immigration and drug trafficking, arguing that they need to ‘stop the big drug and people flows’ or he will ‘stop their cash cow, NAFTA’.
Markets were hopeful that this pressure should push elements of the deal closer to completion; great news for the Canadian economy and indeed the Canadian Dollar, which saw a sizable boost in demand.
In other news crude oil prices crept slightly higher on Tuesday, though markets are concerned that this could be short-lived given Iraq’s latest decision to approve an increase to its oil production capacity (despite its duty to OPEC).
April Fortune for Sterling – Could Seasonal Favour Bolster the GBP/CAD Exchange Rate?
The Canadian Dollar might have the upper-hand this morning, but if seasonality is any guide, Sterling could encounter some good fortune this month.
The Pound has appreciated against the majors every April over the last 13 years, in what the Bank of America Merrill Lynch calls ‘the strongest seasonal trend amongst Group-of-10 currencies’.
This trend corresponds to the typical increase in incoming capital at this time of the year, with dividend payments to British shareholders and various investment inflows marking the start of the UK financial year.
Neil Jones, Head of Hedge Fund Sales at Mizuho Bank Ltd shared his thoughts on the readings:
‘Historically it’s pretty reliable, so I would go with it again this year. It’s self-fulfilling’.
Whilst Bank of America’s Head of G-10 Currency Strategy Kamal Sharma also echoed this sentiment, stating:
‘This remarkable outperformance covers major events such as the financial crisis, general elections and the Brexit referendum, and suggests to us a consistently strong underlying flow which has trumped these idiosyncratic factors’.
UK Services PMI Ahead – What can we expect for the GBP/CAD Exchange Rate?
Sterling could claw back some of its losses this week depending on the performance of the UK’s services PMI, due on Thursday.
The services sector makes up almost 80% of the UK’s overall GDP, making this reading a very important one in assessing the performance of the UK’s economy.
Markets currently expect the reading to slip from 54.5 to 54.2 in March, but given the resilience of the UK’s manufacturing sector, (which printed higher than expected on Tuesday despite the influence of recent snowstorms), many are hopeful that it will beat forecasts.
Beyond this, markets will be keen to assess Canada’s balance of trade reading, due on Thursday, and Friday’s unemployment rate.
If unemployment in Canada continues to remain high then the Bank of Canada (BoC) might be pushed into remaining dovish on policy for even longer, an event that could also give GBP/CAD room to climb.
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