Why is Brexit Affecting the Canadian Dollar?


The approbation of the exit of Great Britain from the European Union, popularly known as Brexit, is a political and social event without historical precedent. Certainly, this will be remembered for generations.

Without a doubt, Brexit will bring a whole new set of problems upon Great Britain. From social issues to economic volatility, this situation will have a deep impact on the way British people live. But what about other Commonwealth countries, like Canada?

The destructive effect of Brexit on the Canadian economy is already reporting casualties. This week, we saw immediate losses for the Canadian Dollar, reaching historic lows. Upcoming weeks could see an even further decline.

Here’s why Brexit is damaging the Canadian Dollar:

Global Aftermath

Before getting into the Canadian situation, we must be clear of Brexit’s global-scale repercussions. Brexit represents, by any means, instability and doubt. In financial matters, these two things are key ingredients to total disaster.

Just as expected, after the decision made public, investors went crazy. So far, many solid stocks from around the world are reaching historic lows. This includes indexes like the American Dow Jones Industrial Average, losing 3.39 per cent in a single session.

In the FOREX scenario, it was pretty clear that an effective Brexit would mean the crash of most currencies, giving priority to the British Pound and the Euro. Now, both currencies have declined in value, fast.

The social reaction, however, will take a bit longer. The results of the referendum aren’t overwhelming: the positive answer to the exit proposition got 51.9 per cent against 48.1 per cent, representing only a difference of 1,269,501 voters from 33,551,986 total.

Social media’s response to the results expresses the younger generations’ anger at the situation, as they are now facing isolation from other European countries and many other disadvantages. At the same time, Europeans will now see Great Britain as the xenophobe neighbor. Not good for business.

Why is the Canadian Dollar Suffering?

Now, let’s talk about Canada. It is true that this North American country isn’t part of the EU by any means. But the ties between this nation and the economic block are notable.

First, Canada is part of the well-known Commonwealth, an organization of the former British Empire’s territories. Just like the EU, the members of the Commonwealth share an important set of social and economic politics.

As expected, the leader of the Commonwealth of Nations is Great Britain, with Queen Elizabeth II as the head of the organization. The Brexit is causing chaos in Great Britain’s economy, which creates a domino effect for all the members of the Commonwealth.

In addition to this direct hit, Canada has massive investments in the United Kingdom’s markets. This same financial instability will cause losses for Canadian investors, both individuals and companies. So, with this scenario, every negative factor for Great Britain will affect Canada as well.

Also, Canada was previously enjoying several of the European Union’s trade policies through Great Britain. Many Canadian companies were executing ambitious commercial strategies to operate in Europe with British privileges. Now, that’s over.

With Brexit effectively putting an end to these benefits, investors are losing interest in Canada. Right now, Canadian markets and Canadian currency represent uncertainty and fear.

The immediate result of such insecurity was the bearish FOREX results for the Canadian Dollar, popularly known as the loonie. The currency ended at 76.93 cents US, representing a total loss of 1.37 in one single session—the worst since 2010.

Once the trade support meets an end and Canada reports the official effect on overseas business, we can expect more losses. Such losses may highly benefit both the US Dollar and gold holders.