What is GBP/CAD?
The GBP/CAD currency pair ranks among the world’s most actively traded pairs. It indicates the value of one British pound (GBP) in Canadian dollars (CAD). For instance, when the exchange rate is 1.70, 1 British pound equals 1.70 Canadian dollars.
Nicknamed the Quid, the British pound is a primary reserve currency, alongside the US dollar and the euro. This means that central banks and international institutions hold significant amounts of pound sterling and euro as part of their foreign exchange reserves. The GBP, as the currency of one of the largest economies in the world, plays a central role in facilitating international trade and investment activities. The UK has a reputation for having a stable economy and conservative monetary policy, with the Bank of England (BoE) serving as the gatekeeper of financial stability. This perception could enhance the attractiveness of the pound among investors and traders.
Also known as the “Loonie,” the Canadian dollar is considered a commodity currency because of Canada’s rich natural resources and heavy energy exports. It is issued by the country’s central bank, the Bank of Canada (BoC).
What affects the price of the GBP/CAD pair?
The exchange rate of GBP/CAD could be influenced by several factors, such as:
- Commodity prices: Canada is the world's fourth-largest producer and exporter of oil. It also has significant natural gas, mineral, and lumber resources; hence some economists observe that the Canadian currency is associated with commodity prices.
- Political stability: Political stability, elections, referendums, and trade disputes can affect investor sentiment and impact the exchange rate of the GBP/CAD pair. For example, Brexit, the process of the United Kingdom's withdrawal from the European Union, has significantly influenced the pricing of the GBP against other currencies.
- Macroeconomic factors: Economic indicators such as interest rates, inflation rates, Gross Domestic Product (GDP) growth, employment data, and the trade balances of both the United Kingdom and Canada can impact the exchange rate. Higher interest rates, stronger economic growth, and favourable economic data typically attract foreign investors, leading to an increase in demand for the currency and potentially strengthening its value.
- Central Bank policies: The monetary policy decisions made by the BoE and the BoC can have a direct impact on the GBP/CAD exchange rate. It can include interest rate changes, quantitative easing programmes, and forward guidance, which can influence the currency's attractiveness to investors.
- Global economic conditions: Changes in global economic conditions, geopolitical events, and trade tensions can impact investor sentiment and influence the demand for safe-haven currencies like the Canadian dollar.
What to watch out for when trading GBP/CAD?
When trading the GBPCAD forex pair (British pound against the Canadian dollar), there are several factors to watch out for. Here are some key considerations:
- UK and Canada’s Inflation figures as shown in the Consumer Price Index (CPI)
- Central Bank (BoE and BoC) Monetary Policy Decisions for Interest Rates
- UK and Canada’s Employment Data and GDP
- UK and Canada’s Trade Balance
- Commodity prices, such as Crude Oil can affect the Canadian dollar
