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Pound Canadian Dollar (GBP/CAD) Exchange Rate Rebounds as US Oil Stockpiles Deliver Shock Rise

May 28, 2020 - Written by Frank Davies

Rising US Oil Inventories Encourage Pound Canadian Dollar (GBP/CAD) Exchange Rate Recovery

A surprise surge in US crude oil inventory stockpiles offered a solid boost to the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate as oil prices dipped.

Support for the commodity-correlated Canadian Dollar weakened as oil markets came under renewed pressure amid fears of a fresh oversupply glut.

While forecasts had pointed towards another weekly drawdown in stockpiles the figure instead saw a 7.9 million increase in barrels.

This weighed heavily on CAD exchange rates, in spite of recent moves from the Organisation of the Petroleum Exporting Countries (OPEC) to curtail excess production.

Although the general sense of market risk appetite picked up in the face of a weaker US Dollar this was not enough to keep the GBP/CAD exchange rate from pushing higher on Thursday.

Slump in Canadian Gross Domestic Product Forecast to Push Canadian Dollar Lower

Support for the Canadian Dollar looks set to weaken further ahead of the weekend with the release of the first quarter gross domestic product report.

Forecasts suggest a sharp -2.6% contraction on the quarter, reflecting the initial impact of the Covid-19 crisis.

Such a major decline in growth momentum could see CAD exchange rates extending their downtrend as confidence in the outlook of the Canadian economy generally diminishes.

If the hit to growth momentum proves larger than forecast this may drag the Canadian Dollar significant lower across the board.

A dramatic slowdown could encourage the Bank of Canada (BOC) to adopt a more dovish policy outlook in the months ahead, given that growth in the second quarter looks set to prove weaker still.

Any renewed sense of market risk aversion may also put a dampener on CAD exchange rates heading into the weekend as worries over the global trade outlook persist.

GBP Exchange Rates Set for Volatility on UK Housing Price Index Report

The mood towards the Pound saw some improvement, meanwhile, in spite of lingering Brexit-based anxiety.

Although the UK appears at increasing risk of exiting the current transition period without any fresh trade deal in place the odds of further economic disruption look significant.

Even so, GBP exchange rates could face fresh selling pressure on the back of May’s Nationwide housing price index.

With prices looking set to experience a decline on the month worries over the health of the UK housing market could pick up further.

Until investors see evidence of the UK economy beginning to bounce back from the impact of the Covid-19 lockdown the GBP/CAD exchange rate may see limited upside potential.
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