THE POUND/CANADIAN DOLLAR
A currency pair that is used to fluctuations over the last several years, the GBP/CAD has become popular for many traders recently. Read the information below to find out more about the factors that move both currencies and see if you are ready to start trading.
WHO SHOULD CONSIDER TRADING THE POUND/CANADIAN DOLLAR
Traders searching for short-term opportunities can include the Pound/Canadian Dollar on their list. Small moves can potentially translate into big gains, if the opportunity is seized correctly.
Those seeking diversification in their portfolio can add this currency pair. Both currencies are considered relatively stable when compared to other financial assets.
Anyone looking to trade currencies for the first time, can consider the GBP CAD as a viable option.
LET’S DISCUSS THE POUND/CANADIAN DOLLAR
One of the more exciting currency pairs available, the Pound and Canadian Dollar come from markets with a long and complex shared history. Both countries are part of the British Commonwealth and have the same queen. They also share common law, accounting practices and of course, the same language.
WHAT DO I NEED TO KNOW ABOUT THE POUND AND THE CANADIAN DOLLAR?
As a former British Colony, Canada used the British Pound until 1858, when the Canadian Dollar was first introduced. The interesting fact is that Canada only became independent in 1867, nine years later. Unlike the young Canadian Dollar, the Pound is one of the oldest currencies in human history. It officially became the currency of England in 928 AD.
In recent years however, the relationship between the two countries dissipated somewhat. This was not due to conflict, but rather the natural separation that will occur when countries belong to different trading blocs. The United Kingdom is part of the EU, while Canada belongs to the NAFTA trading agreement with the United States and Mexico.
HOW HAVE THE CURRENCIES PERFORMED AGAINST EACH OTHER OVER THE LAST DECADE?
The Pound is one of the most robust currencies in the world. However, the British currency has not performed well against the Canadian Dollar recently, when compared to previous decades. In 2008 and 2016, the Pound was worth twice the value of the CAD. However, the Pound did experience a slump against the Canadian Dollar between 2010 and 2013, and again briefly in 2017. The current trend is that the Canadian Dollar is gaining ground against the Pound. However, this could change quickly and without any advanced warning.
WHICH FACTORS INFLUENCE THE GBP/CAD VALUE?
The interest rates set by the European Central Bank can have a profound impact on this currency pair. In addition, the unemployment rate and economic forecasts coming out of Europe can also change the direction of the Pound quickly. It is important to remember that while the UK is part of the EU, it is not part of the Eurozone. This means that reports coming out of the UK can also significantly impact the Pound. These reports include balance of trade, unemployment rate and inflation rate. On the Canadian side, the Bank of Canada sets interest rates that can affect the Canadian Dollar. Additionally, major financial reports for Canada are identical to the major reports to watch for in the UK.
Another important factor is the trade relationship between Canada and the United States. The US is Canada’s largest trading partner, ensuring that the health and performance of the relationship can be a major factor driving the Canadian Dollar.
WHAT ARE SOME OF THE POSITIVE REASONS FOR TRADING THE POUND/CANADIAN DOLLAR?
The economies of both countries are currently benefiting from relative health. Canada grew by 3% in 2017, and while the UK only grew by 1.8%, it is still the financial centre for all of Europe.
The UK is scheduled to leave the EU in 2019, presenting traders with the unique opportunity of actively trading during one of the biggest financial events of the century thus far.
Both economies and countries are stable and law abiding. This means that the chance of unexpected occurrences such as war and widespread government corruption is very small.
WHAT YOU NEED TO CONSIDER
Due to Canada’s and the UK’s shared history, the chances of worsening relations are next to zero. The chance of a trade embargo for example, is non-existent. In fact, most people would assume that relations between the countries will improve even more once the UK departs from the EU.
One of the reasons for Canadian economic stability is the massive amount of natural resources at its disposal. Canada is the second largest country in the world, and has an almost unlimited supply of important metals, minerals and lumber.
The UK will need to sign a new trade agreement with Canada once it leaves the EU. While the chances of this deal not happening are extremely low, any delays could result in consequences for both economies.
HOW TO TRADE THE GBPCAD?
The traditional method involves working directly with your bank to exchange currencies using their interface.
Trading with an online broker has become the most popular and efficient way of joining the global markets. Trading currencies with an online broker like eToro is easy and convenient.
Joining the derivatives market allows you to speculate on the state of the UK and Canadian economies. However, this method is time-consuming and not always reactive enough to capitalise on market opportunities.
IS TRADING THE POUND/CANADIAN DOLLAR RIGHT FOR YOU?
Only you can answer that question. If you are willing to learn and take some risks, then you have as good a chance as the majority of other traders. You can start now with some small trades and work your way up to bigger investments when you are ready.
*This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.
*Past performance is not an indication of future results. All trading carries risk. Only risk capital you’re prepared to lose.