Foreign Exchange Rates - GBP/CAD Rate Drops as Canadian Dollar Gains From Spike in Oil Price

Published: Monday, 7 March 2011 07:47 BST - Written by John Cameron

STORY LINK Foreign Exchange Rates - GBP/CAD Rate Drops as Canadian Dollar Gains From Spike in Oil Price

The Pound Canadian Dollar exchange rate (GBP/CAD) is 1.5804 at present.

The price of a barrel of Brent Crude Oil is once again edging towards $120 as the political situation in Libya looks to be descending into civil war.

US policy makers have stated that they are considering releasing a significant tranche of their emergency oil reserves onto the market in order to lower wholesale prices. Although the US emergency reserve comprises over 700 million barrels of crude, it is unlikely that this action will be enough to dampen spiralling oil prices if the Arab crisis continues.

Canada is the sixth largest oil producing country in the world, so the Canadian Dollar is a major beneficiary of the increase in oil prices which the Arab uprising has precipitated. The GBP/CAD rate stood at 1.6176 as recently as 23rd February, but the CAD has gained the best part of 4c against the Pound in the intervening two weeks as fears over the security of future oil supplies increased.

Canadian interest rate expectations are also proving support for the Canadian Dollar. Although the Bank of Canada opted to maintain interest rates at 1.00% last week, futures markets are pricing in almost 1% of Canadian interest rate increases over the next 12 months. This is significantly more than market expectations for UK interest rate rises, a fact which could see further downside for the GBP/CAD rate.

Friday’s US labour market data, which showed that unemployment in the States fell for the third month in succession, will also provide encouragement for investors with Canadian Dollar interests. The USA is Canada’s major oil export partner, so these employment numbers, along with recent US data releases which showed that the US manufacturing sector is growing at its fastest rate for almost seven years, are likely to provide further support for the CAD. This could see the GBP/CAD rate trade down to test its 2011 low of 1.5291, which would provide a strong level of support.

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TAGS: Canadian Dollar Forecasts Daily Currency Updates Pound Can Forecasts