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GBP to CAD Exchange Rate Firm Despite Rising Oil Prices

October 10, 2017 - Written by Toni Johnson

Signs that the oil market may finally be rebalancing have not caused a notable shift in Canadian Dollar movement, as the British Pound to Canadian Dollar exchange rate has held most of yesterday’s gains due to rising hopes for tighter Bank of England (BoE) policy.

Due to BoE hopes and cooling political jitters, the GBP/CAD exchange rate has climbed from Monday’s opening level of 1.6366 to above the level of 1.64. The pair currently trends near the level of 1.6475.

Further GBP Gains Weighed by UK Trade Data

Sterling advanced on Monday as investors became more optimistic that UK Prime Minister Theresa May could reshuffle her government cabinet in order to quell any potential Conservative leadership challenges.

This followed a week of political uncertainty, as mutterings emerged that May would not hold the Prime Minister job for much longer, and concerns grew that UK Foreign Secretary Boris Johnson was attempting to undermine her role.

The Pound was also supported by rising hopes that the Bank of England (BoE) could hike UK interest rates as soon as November, due partially to a revised UK labour cost report from the Office for National Statistics (ONS).

However, Sterling’s advances slowed on Tuesday and it saw more flat trade against the Canadian Dollar, as the day’s UK ecostats failed to impress investors.

Britain’s August trade balance was forecast to improve from £-2.87b to £-2.8b, but instead worsened from a revised £-4.24b to £-5.63b.

Analysts were concerned by the news. According to Suren Thiru, head of economics at British Chamber of Commerce;

‘Taken together with the recent widening of the current account deficit, the figures paint a rather gloomy picture of the UK’s external position.

The latest trade data is further evidence that the decline in Sterling’s value over the past year is doing little to boost the UK’s overall trade position. Businesses continue to report that the post-EU referendum weakness in Sterling is hurting as much as its helping, with firms continuing to face higher input costs due to the weakening currency, particularly those locked into global supply chains.’

The day’s UK manufacturing and industrial production beat expectations in year-on-year prints, but this did not have a notable impact on Pound movement.

NIESR’s Q3 UK Gross Domestic Product (GDP) came in at 0.4%, which was just slightly higher than Britain’s 0.3% growth rate in Q2.

CAD Firms as Oil Outlook Improves

The Canadian Dollar has largely reacted to Bank of Canada (BOC) news and Canadian ecostats in recent months, but the commodity-correlated currency has been influenced by oil prices this week.

Prices of oil, Canada’s most lucrative commodity, have been rising since markets opened on Monday due to indications that OPEC member nations are looking to extend oil output curbs in hopes that prices will continue to rise.

Signs that the oil market is finally rebalancing, as well as OPEC’s oil curb signals, have made the commodity appealing in recent sessions.

As a result, the oil-correlated Canadian Dollar held its ground against further GBP/CAD recovery on Tuesday.

The ‘Loonie’ was also supported by Canada’s September housing prices report, which came in at 217.1k rather than the forecast 210k. The previous figure was revised higher from 223.2k to 225.9k.

GBP/CAD Forecast: Political Developments in Focus

While investors are increasingly optimistic about the possibility of a Bank of England (BoE) interest rate hike in the coming months, the Pound outlook could still be destabilised if Britain’s political jitters worsen.

Any sign that UK Prime Minister Theresa May could still face a leadership challenge, or that Brexit negotiations remain at a standstill, threatening the chances of trade talks any time soon, could keep pressure on the Pound.

On the other hand, a government cabinet reshuffle from May or a breakthrough in Brexit negotiations would help give the Pound a major boost.

UK data is unlikely to inspire GBP/CAD movement until next week’s September inflation data is published.

Similarly, upcoming Canadian data is unlikely to influence ‘Loonie’ movement much until the second half of the month.

Instead, Canadian Dollar trade is likely to be inspired by oil price news, as well as any new signals from Bank of Canada (BOC) officials.
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