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US ‘Defensive Action’ in the Middle East Leaves Pound Canadian Dollar (GBP/CAD) Exchange Rate Flat despite Rise in Oil Prices

July 19, 2019 - Written by John Cameron

Pound Canadian Dollar (GBP/CAD) Exchange Rate Muted despite Rise in Oil Prices

The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate remained muted and the pairing is currently trading at an inter-bank rate of CA$1.6355.

On Friday oil prices rose as tensions in the Middle East increased as reports revealed that a US Navy vessel destroyed an Iranian drone in the Strait of Hormuz.

US President Donald Trump said the USS Boxer ‘took defensive action’ after the drone came within 1,000 yards of the ship.

However, Iran has said it has no information about losing a drone and in a Tweet, Deputy Foreign Minister Abbas Araqchi said:

‘We have not lost any drone in the Strait of Hormuz not anywhere else. I am worried that the USS Boxer has shot down their own UAS by mistake.’

Meanwhile, the ‘Loonie’ remained muted as there have been indications that the US Federal Reserve is going to aggressively slash interest rates to support the economy.

Commenting on this, Managing Partner at Vanguard Markets, Stephen Innes said:

‘The Fed backstop and the report of the US Navy shooting down an Iranian drone are providing a modicum of support for oil markets amidst a very bearish landscape.’

Sterling (GBP) Flat as the UK’s June Deficit Largest in Four Years

The UK’s budget deficit rose faster than anticipated as the government were forced to borrow more than £7 billion in June.

This was the largest June deficit in four years, which means the UK’s fiscal position will likely be weakened ahead of the UK’s departure from the EU.

Both Boris Johnson and rival Jeremy Hunt have made promises to make tax cuts and increase spending.

In an email to clients, Howard Archer Economist at EY ITEM Club said:

‘Disappointing news on the public finances to greet the new Prime Minister and Chancellor.

‘The imminent change of Conservative leader […] looks highly likely to result in a significant change of tack on fiscal policy.’

Canadian Dollar (CAD) Flat despite Rebound in ADP Employment Change

On Thursday, ADP employment change data rebounded in June.

Employment in Canada rose by 30,400 jobs between May and June following a downwardly revised slump of -36,700 jobs in May.

Commenting on the data, Vice President and Co-Head of the ADP Research Institute Ahu Yildirmaz said:

‘June experienced higher acceleration in job growth following a sharp decline in May.

‘Construction delivered the biggest contribution to the increase, along with professional/business services which reflects the increasing demand for high skilled workers.’

Pound Canadian Dollar Outlook: Will GBP Slide as New PM Announced?

Looking ahead to this afternoon the Canadian Dollar (CAD) could rise against the Pound (GBP) following the release of Canada’s retail sales.

If retail sales increase higher than forecast in May, it could provide an upswing of support for the ‘Loonie’.

Meanwhile, at the start of next week’s session the Pound could slide as the Conservative leadership contest comes to an end.

If frontrunner Boris Johnson becomes the next Prime Minister it is likely no-deal Brexit fears will increase, causing the Pound Canadian Dollar (GBP/CAD) exchange rate to slide.

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