Rising Oil Prices and Improved Risk Sentiment Leaves the Pound Canadian Dollar (GBP/CAD) Exchange Rate Flat

May 5, 2020 - Written by John Cameron

STORY LINK Rising Oil Prices and Improved Risk Sentiment Leaves the Pound Canadian Dollar (GBP/CAD) Exchange Rate Flat

Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Muted as Oil Prices Jump

The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate remained largely flat, leaving the pairing trading at around CA$1.7509.

The oil-sensitive ‘Loonie’ remained flat against the Pound as oil prices jumped once again on Tuesday on the hopes for a recovery in demand.

Oil markets bet there is going to be a recovery in vehicle traffic and oil demand as some European and Asian countries, as well as some US states start to ease their coronavirus lockdown measures.

Risk appetite was also provided a boost as countries including Italy, Spain, Nigeria, and India began to allow some people to go back to work, and opened up construction sites, parks, and libraries.

Added to this, Ohio and some other US states began to open up, and vehicle traffic in the US rebounded. This included states that have yet to lift their shelter-in-place orders.

According to Giovanni Staunovo, UBS commodities analyst:

‘The outlook for this and next year is turning brighter: demand should be supported by a recovering global economy.’

Increase in Risk Appetite Supports Sterling (GBP)

Meanwhile, the Pound remained flat against the Canadian Dollar as a rise in risk sentiment also offered support.

The pairing remained flat as risk appetite improved amongst investors after US officials said they were not looking to take punitive measures against China. This came after US President Donald Trump stepped up his verbal attacks on Beijing.

Commenting on Sterling’s movement this morning, Viraj Patel, FX and global macro strategist at Arkera said:

‘Sterling has steadied after a sharp adjustment lower at the start of the month. The risks are still to the downside as global markets could find limited positive catalysts in May with much of the global monetary and lockdown easing sentiment priced in.

‘Any further adjustment lower would be driven by US Dollar haven flows in a broader risk-off market.’

British Economy Expected to Shrink by -7%

Meanwhile, Sterling was left flat against the Canadian Dollar after Markit revealed the country’s service sector suffered a sharp decline in activity.

The UK services PMI came in at a dismal 13.4 in April, down from March’s 34.5 as the sector saw a decline in new work, employment, and activity.

Commenting on this morning’s data, Markit’s Economics Director, Tim Moore wrote:

‘April's PMI data highlights that the downturn in the UK economy during the second quarter of 2020 will be far deeper and more widespread than anything seen in living memory.

‘Historical comparisons of the PMI with GDP indicate that the April survey reading is consistent with the economy falling at a quarterly rate of approximately 7%, but we expect the actual decline in GDP could be even greater, in part because the PMI excludes the vast majority of the self-employed and the retail sector.’

Pound Canadian Dollar Outlook: Will Oil Prices Continue to Rise?

Looking ahead, the Pound (GBP) could edge lower against the Canadian Dollar (CAD) following the release of the UK construction PMI.

If Markit reveals the construction PMI has also plummeted to fresh lows, it will dampen Sterling sentiment.

Meanwhile, the oil-sensitive ‘Loonie’ could be offered a further boost if oil prices continue to rise.

If there are further signs that suggest global oil demand will rise as further countries begin announcing easing of coronavirus lockdown measures, the Pound Canadian Dollar (GBP/CAD) exchange rate will edge lower.

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TAGS: Pound Canadian Dollar Forecasts