Pound Canadian Dollar (GBP/CAD) Exchange Rate Remains Under Pressure from Bullish Oil Outlook

January 4, 2017 - Written by Toni Johnson

STORY LINK Pound Canadian Dollar (GBP/CAD) Exchange Rate Remains Under Pressure from Bullish Oil Outlook

The Pound to Canadian Dollar exchange rate failed to recover from its worst levels since October 2016 on Thursday afternoon, as the ‘Loonie’ continued to be boosted by the latest oil news.

Prices of brent crude oil gained almost 1% throughout the day to reach US$56.95 per barrel, and with OPEC’s oil output cap plans taking effect traders hope the commodity will continue to rise in price.

(Previously updated 04/01/2017)

Demand for the Canadian Dollar (CAD) has remained relatively high at the start of the year, largely thanks to the persistent strength of commodity prices and investor risk appetite.

This has kept the Pound Canadian Dollar (GBP CAD) exchange rate under continued pressure in spite of the latest raft of UK data proving largely positive.

Pound Rallied on Stronger UK PMIs

Both the UK Manufacturing and Construction PMIs surprised to the upside, defying market expectations of a modest dip in economic activity and encouraging the Pound to strengthen.

These stronger showings suggested that the corresponding Services PMI could also outperform forecasts, indicating that the negative impact of Brexit has remained limited, for now at least.

However, the signs from the reports were not entirely positive, as Tim Moore, senior economist at IHS Markit, noted:

‘The main negative development in December was a sustained acceleration in input cost inflation to its strongest since 2011. UK construction companies noted that the weaker Sterling exchange rate had resulted in higher costs for a wide range of imported materials, while some also reported that forward purchasing of inputs had led to depleted stocks among suppliers.’

A lack of increase in mortgage approvals for November also weighed on the Pound, particularly as a degree of Brexit-based uncertainty remained following the unexpected resignation of the UK’s ambassador to the EU.

Risk Appetite Shored up Canadian Dollar (CAD) Demand

Although Brent crude was unable to hold onto the US$57 per barrel mark it achieved at the end of 2016, the commodity remained on a bullish trend, shored up by the expectation that the impact of the OPEC production cuts will soon materialise.

With the US Dollar (USD) on a general downtrend the appeal of the commodity-correlated ‘Loonie’ improved, benefitting despite persistent expectations that the Federal Reserve will raise interest rates multiple times in the coming year.

Investors expect to see a dip in the latest US crude oil inventories figures, something which could offer fresh reassurance to investors that the global oversupply glut is beginning to ease at long last.

GBP CAD Exchange Rate Forecast to Strengthen on Higher Canadian Unemployment

The GBP CAD exchange rate could rally if December’s UK Services PMI does show an increase in sector growth, given that the majority of the UK’s economic activity is driven by the service sector.

If signs continue to point towards the robustness of the domestic economy then concerns over Brexit could ease, regardless of developments in the wider political landscape.

Further volatility for the GBP CAD exchange rate can be expected in response to Canada’s latest raft of labour market data, which is forecast to show an uptick in the unemployment rate for December.

Any weakening in the Canadian economy could weigh heavily on the ‘Loonie’, with labour market softness likely to prompt renewed speculation over the policy outlook of the Bank of Canada (BOC).

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Currency Predictions Daily Currency Updates Poun Forecasts