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GBP to CAD Exchange Rebounds from Worst Levels as Oil Prices Drag Canadian Dollar Lower

May 29, 2018 - Written by Frank Davies

Despite a surge in risk-sentiment briefly dragging the British Pound to Canadian Dollar (GBP/CAD) exchange rate lower on Tuesday morning, the pair had recovered most of its losses by the afternoon as investors lost appetite for Canadian Dollar trade. Falling prices of oil, Canada’s most lucrative commodity, weighed on the ‘Loonie’.

Amid poor UK ecostats and solid risk-sentiment, GBP/CAD slumped from 1.7342 to 1.7250 last week. The pair’s movement has been much narrower so far this week. While GBP/CAD touched a low of 1.7184 last week, it was still well above last week’s low of 1.7123 and the pair trended closer to the level of 1.7290 at the time of writing.

GBP Demand Mixed as Brexit and Economic Uncertainties Persist


Last week was a bearish one for Pound trade, as the British currency was dragged lower by a combination of fresh Brexit uncertainties and disappointing UK ecostats.

Investors once again became concerned about the possibility that the UK government may not be able to figure out a deal on how to handle Ireland’s border post-Brexit.

Questions on whether or not Britain would remain in an EU customs union post-Brexit also weighed heavily on Sterling.

On top of the Brexit uncertainty, last week’s UK data was largely disappointing.

Britain’s April inflation rate was forecast to remain at 2.5% year-on-year but unexpectedly slowed to 2.4%. The yearly inflation rate improved from 0.1% to 0.4%, below the forecast 0.5%.

Friday’s data followed, indicating that UK growth was still projected to have slowed to just 0.1% quarter-on-quarter.
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This weighed on market hopes that the figure would be revised higher. As a result of last week’s data, investors became more doubtful that the Bank of England (BoE) would remain as hawkish as it had done earlier in the year.

The BoE had previously been predicted to hike UK interest rates twice in 2018, but due to poor UK data investors are now unsure that the bank will hike rates at all. August interest rate hike bets fell in response to last week’s data.

While the Pound recovered slightly against a weaker Canadian Dollar on Tuesday, its gains were still limited by the latest Bank of England uncertainties.

Reports have emerged suggesting there is a split between the Bank of England and the UK Treasury on how to handle the City of London’s financial centre following Brexit.

CAD Fails to Hold Gains as Oil Prices Slump


On Tuesday, Canadian Dollar investors reacted to news that Canada’s government had decided to purchase a major oil pipeline project.

The government will purchase the Kinder Morgan’s Trans Mountain pipeline, following frustration from Kinder Morgan regarding delays by British Columbia’s government.

On top of this causing uncertainty in oil markets, the commodity has been unappealing due to expectations that Saudi Arabia and Russia will be increasing crude production to counter a potential shortfall in supply.

As oil is Canada’s primary export, the strength of the Canadian Dollar commonly correlate to oil prices. The recent losses in oil have left the Canadian Dollar unappealing.

Market anticipation for Wednesday’s key Bank of Canada (BoC) policy decision also limited demand for the Canadian Dollar today.

GBP/CAD Forecast: Bank of Canada (BoC) decision and Canadian Growth Results Ahead


While the Canadian Dollar has been reacting to risk-sentiment for much of the week so far, the Pound to Canadian Dollar exchange rate is more likely to be influenced by major Canadian ecostats in the second half of the week.

Wednesday will see the Bank of Canada (BoC) hold its May policy decision.

The bank is not expected to announce any changes to monetary policy, but any signals the bank sends regarding its plans for monetary policy in the second half of the year could be highly influential.

For example, if the bank hints that there could still be multiple Canadian interest rate hikes before the end of the year, this could make the Canadian Dollar more appealing.

Of course, an impressive Canadian growth rate report on Thursday would also boost Canadian Dollar trade.

As for the Pound, it is likely to be driven more by the strength of rivals in the coming sessions.

None of this week’s data is likely to have a notable impact on Bank of England (BoE) interest rate hike bets, and Brexit uncertainties persist. This is likely to keep a lid on the Pound’s potential for gains.
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