Pound to Canadian Dollar Firmer as Oil Prices Slip

May 26, 2015 - Written by Frank Davies

STORY LINK Pound to Canadian Dollar Firmer as Oil Prices Slip

Pound to Canadian Dollar Firmer as Oil Prices Slip

The Pound Sterling firmed against the Canadian Dollar as crude oil prices fell after being pressured lower by a stronger US Dollar and rumours that US shale oil producers could increase the amount of drilling they carry out. According to a report released by Goldman Sachs, the number of drills taken offline in the US numbered just one. With prices, rallying in recent weeks back above the 60 cents per barrel level speculation is growing that US production could increase as oil becomes more profitable. Following the release of the report, the price of crude fell by 45 cents.

‘The main factor weighing on prices is the significantly appreciating US Dollar. What is more, the decline in drilling activity in the US that has been ongoing for 23 weeks appears to have stopped. More drilling in the United States would lessen the prospect of a tighter oil market in coming months,’ said an analyst from Commerzbank.

The Canadian Dollar’s run of gains which sent it climbing to multi-week highs against a number of peers is likely to have ended after it weakened to its lowest level in a month against the ‘Greenback’ and softened against the Pound last week. The reversal in the Canadian Dollar’s upward trajectory comes as the rebound in oil prices, (Canada’s biggest export is crude oil) slowed and as a domestic data report showed that consumer prices fell in April.
Also putting pressure on the Canadian currency are expectations that Bank of Canada Governor Stephen Poloz will not be able to maintain the optimism he has put forward in recent weeks.

‘What’s changed is you’re starting to see the data go the other way. The action we’re seeing this week suggests it might be time to put back on positions that benefit from a weaker Canadian Dollar,’ said economic strategist David Doyle from Toronto based Macquarie Capital Markets.

Market attention will now focus on the BoC’s next policy meeting that is due to be held on Wednesday. Economists are predicting that the central bank’s policy makers will choose to vote in favour of leaving interest rates unchanged at 0.75%.

Also of interest, will be Thursday’s Canadian current account and producer price inflation (ppi) data. Deterioration in those figures will likely increase investors dovish stance towards the ‘Loonie’ and see the currency weaken. The main event of the week however will be Friday’s
Canadian GDP figures. On a quarter-on quarter basis, the Canadian economy is forecast to have stagnated.

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