A lot of currency trades are based upon the USD, but this isn’t always the case. While the health of the United States economy does have a considerable impact upon the rest of the world, it does not single-handedly influence currency values elsewhere. A common non-USD trade is between that of the GBP/CAD. These two economic powerhouses both boast outputs exceeding a trillion pounds, but the internals of these economies varies quite a bit.
In Canada’s case, the price of oil has quite a noticeable impact on the value of the CAD. The oil sand boom has only increased the share of oil production in Canada’s general economy and coupled with its dependence on the United States it is quite prone to sudden upward or downward changes in the status of its currency. Indeed, about 10% of Canada’s economy consists solely of oil extraction, and 97% of Canada’s extracted and refined oil goes to the United States, as well as a considerable portion of its manufactured goods. If you are going to trade the GBP/CAD, keep an especially close eye on the price of oil as well as the health of Canada’s trade sector with the United States.
For Great Britain, its trade with the EU constitutes the bulk of its economic and financial fortune. A substantial portion of its trade and foreign reserves stems from trade with other countries in Europe, given that its still-current membership in the EU affords it an advantage relative to trading with non-EU countries. Any threat or change to this dynamic can have a considerable impact on the value of the GBP/CAD (to say nothing of its value relative to all other currencies).
Indeed, the recent Brexit vote has caused a double-digit drop in the GBP’s value, a decline that it has yet to recover from. Because the financial sector is what Great Britain relies upon more, and being that a substantial degree of this business is done with the mainland, leaving the EU threatens to jeopardise this dynamic. While the Brexit does not suggest a complete cessation of business with Europe, the logistical hurdles introduced by the vote could reduce its level. Much like how the passage of NAFTA resulted in a significant increase in trade between the three North American countries, leaving the EU could have considerably negative effects on Great Britain’s economy in the future, along with being detrimental to the GBP/CAD currency pair.
Naturally, the above factors aren’t the only things to consider. But in the case of the GBP/CAD, both currencies strength is greatly impacted by the health of economies close to them (unlike the USD). Understanding how these currencies are intertwined to the countries close to them will help tremendously in executing effective GBP/CAD currency trades. Canada and Great Britain don’t have a particularly symbiotic relationship, so looking at all of the factors around them rather than between them would be your best bet.
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Alexander Bowring is a London based writer and a Southampton Solent University Screenwriting graduate. He has worked alongside TV personality and Telegraph feature writer Alison Cork, whilst also having produced content for ITV, This Morning, Canvas8, Who’s Jack, Alison at Home, and Bonallack & Bishop Solicitors. Alexander also has a keen interest in investments.