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Brexit Contagion Hits Markets

Published June 27, 2016
  • Risk aversion continues across asset classes this morning after the UK voted to leave the EU Friday
  • The pound sterling has fallen 3.8% against the dollar to low of 1.3160 – a level not seen since 1985
  • UK Chancellor of the Exchequer George Osborne tried to calm markets by mentioning contingency plans to deal with the financial aftermath of the vote, but traders kept hitting the sell button
  • UK equities are 2% lower for cumulative losses of 5.28% since Friday
  • Stock markets across the European continent are in the red as well, and yields on safe haven German government bonds moved deeper into negative territory as their prices were bid up in a flight to safety
  • Yields on UK 10 year notes fell below 1% for the first time ever in a display of the acute level of uncertainty permeating across the financial landscape
  • Amid the risk-off tone, USDCAD remains above 1.3000 but has yet to break Friday's intra-day high
  • The Loonie is also coming under pressure from lower WTI oil prices which have dropped 7% since Friday to $46.80
  • Oil prices are now 9.6% below their 2016 peak of $51.67 reached earlier this month
  • Economic data is light out of Canada this week with traders eyeing Thursday's GDP report for April and Producer Prices for May
  • The US reports final Q1 GDP as well as Consumer Confidence Tuesday which would could really provide some fireworks for USD bulls if the data are above expectations…
  • …strong US data coupled with the current risk-off tone has the potential to create a perfect storm for the USD, skewing the balance of risks to the upside for USDCAD in the near term

 

USDCAD Chart: Sentiment favours the USD above the key 21 day moving average at 1.2891 (white).