Pound to Canadian Dollar Weakens as Oil Prices Hold at 4-Month High

April 27, 2015 - Written by Tim Boyer

STORY LINK Pound to Canadian Dollar Weakens as Oil Prices Hold at 4-Month High

Pound to Canadian Dollar Weakens as Oil Prices Hold at 4-Month High

The Pound Sterling weakened against the Canadian Dollar as the ‘Loonie’ was buoyed by rising oil prices. Investor concerns over the conflicts in the Middle East combined with signs of a slowdown in US oil production to send the value of the commodity climbing higher. Brent crude oil prices now stand at $65.37 per barrel and have risen by $9 since March.

The conflict in Yemen intensified over the weekend as Saudi Arabia and its allies launched air raids and naval barrages against Houthi rebels that have conquered vast swathes of the nation. The rebels are suspected of being backed by the Iranians, the main rival to Saudi influence in the region. The rise in prices will come as a relief to a number of oil producing nations and companies as BP, Exxon Mobil and Shell are expected to report large declines in first quarter earnings.

‘Overall we are in an upwards trend and we do appear to have found a short-term base. There’s a good chance we could see $70 per barrel over the course of the next month or so,’ said Michael Hewson, chief market analyst at CMC Markets.

The fighting in Yemen has raised concerns that the strategically vital seaways that pass it by could become affected and impact upon trade coming from Asia, up the Red Sea and the Suez Canal. In order to ensure that ships keep moving the USA has dispatched an aircraft carrier and other warships to the region.

Also supporting oil prices was a report showing that the number of US oil rigs in service has fallen to the lowest level since 2010. A reduction in supply will aid prices. Some economists are now expecting that oil prices will rally strongly from the six-year low touched in the first month of the year.

‘Deflation fears are overdone and we’re seeing some upside surprises now, although risks of persistent low inflation remain. A positive oil shock has a detrimental effect on growth and activity, and could generate some volatility,’ said an economist at Bank of America Merrill Lynch.

The Pound Sterling is forecast to weaken further on Tuesday as analysts predict that UK GDP Growth Rate data will disappoint. The quarterly growth rate is forecast to have slowed from the 0.6% rate recorded in the final quarter of 2014 to 0.5% in the first quarter of 2015. In the same session Bank of Canada Governor Stephen Poloz is due to deliver a speech.

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