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Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Muted as Oil Prices Jump Near Three-Month Highs

June 2, 2020 - Written by John Cameron

Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Flat as Oil Prices Rise Near Three-Month Highs

The Pound Sterling Canadian (GBP/CAD) exchange rate remained flat on Tuesday afternoon. This left the pairing trading at around CA$1.6951.

The oil-sensitive ‘Loonie’ struggled to make gains against an upbeat Sterling today despite oil prices rising near three-month highs.

Expectations oil producers would agree to extend the current oil output cuts buoyed prices, and offered the Canadian Dollar support.

Cuts by OPEC+ has buoyed Brent crude prices, with prices doubling in the past six weeks. However, oil prices are still down by around 40% this year.

OPEC+ producers are considering extending the current production cuts of around 9.7 million barrels per day (bpd). This is the equivalent of around 10% of global production and it may be carried through into July or August.

Commenting on this, head of commodities research at Citi, Edward Morse noted:

‘Most likely, OPEC+ could extend current cuts until Sept. 1, with a meeting set before then to decide on next steps.’

Under the original OPEC+ plan, cuts were to run through both May and June, offering markets support.

Oil markets were offered further support as Saudi Arabia has been pushing to keep the deeper production cuts in place for longer.

However, Giovanni Staunovo, UBS analyst warned that if oil prices continued to rise it would unleash further stored oil onto markets which would be ‘self-defeating’.

He also added:

‘The marked price increase in recent weeks is bringing back crude production that was shut-in, triggering the unloading of oil stored on tankers and weighing on refinery margins.’

Sterling (GBP) Flat despite Boost of Brexit Optimism as UK Expected to Compromise

Meanwhile, Sterling remained flat against the Canadian Dollar despite an upswing of Brexit optimism as the UK heads to the next round of Brexit negotiations with the EU.

Britain and the European Union are expected to begin the next round of trade discussions today.

This buoyed GBP against a handful of currencies including the US Dollar (USD), which caused GBP/USD to rise to the highest level in a month on signs the UK may be willing to compromise.

However, due to upbeat oil prices, Sterling was unable to rally against the ‘Loonie’.

The Times reported the UK is expected to show flexibility over fisheries and trade rules if the European Union agrees to lessen its ‘maximalist’ demands, which buoyed GBP as this was one of the key sticking points.

Industry chiefs stated today that London and Brussels may reach a compromise on fisheries by allowing the bloc more access to UK waters in exchange for increased British fishing quotas.

Pound Canadian Dollar Outlook: Bank of Canada in Focus This Week

Looking ahead, the Canadian Dollar (CAD) could suffer losses against the Pound (GBP) following the Bank of Canada’s (BoC) interest rate decision.

While the BoC is expected to leave interest rates unchanged at 0.25%, if the bank is overly dovish about the future, it could dampen ‘Loonie’ sentiment.

Meanwhile, Sterling could make further gains this week if trade talks between the UK and European Union show signs of progress.

If both sides compromise on key issues and discussions progress successfully, it will send the Pound Canadian Dollar (GBP/CAD) exchange rate higher.

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