January 19, 2021 - Written by David Woodsmith
STORY LINK GBP to CAD Exchange Rate Edges Higher as USD Jitters Weigh on ‘Loonie’
While the Pound’s appeal has been a little weaker this week so far, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate has been edging higher. As the Canadian Dollar is weighed by a combination of market risk-aversion and weakness in the US Dollar, the currency has been unable to capitalise on recent strength in oil prices. Meanwhile, speculation is rising that Britain’s improving longer term outlook could cause some Pound advances soon.
Since opening this week at the level of 1.7300, GBP/CAD has been trending with a largely upside bias. GBP/CAD is trending around a third of a cent above the week’s opening levels in the region of 1.7338 at the time of writing.
GBP/CAD has been unable to hold last week’s high of 1.7429. Still, GBP/CAD continues to gradually advance, and is over a cent above the previous week’s opening levels of 1.7224.
GBP Exchange Rates Avoiding Further Losses as Currency’s Speculative Longs Rise
The Pound’s movement has been jittery this week so far. Sterling started the week off on a bearish note, as investors avoiding risks found Britain’s coronavirus and Brexit woes unappealing.
While Britain is ramping up coronavirus vaccination programmes, the situation is not improving as quickly as markets had been hoping. Infection rates remain high.
On top of this, some fishery businesses have been reportedly experiencing difficulty importing goods to the EU under the new UK-EU post-Brexit trade deal. This fresh Brexit uncertainty is further weighing on the Pound’s appeal.
Still, the Pound is edging a little higher amid market expectation that Britain’s outlook will improve.
Coronavirus vaccine hopes, combined with the Brexit process finally being over and negative interest rates from the Bank of England (BoE) being unlikely any time soon, have meant that analysts are predicting the undervalued Pound could mount a strong recovery.
According to UBS Strategist Thomas Flury and Economist Dean Turnery:
‘The Pound is a procyclical currency, and the UK usually profits from investment inflows whenever global growth is strong. After many years of Brexit stress and an undervalued Pound this procyclicality might have an even bigger impact than normal,
a successful rollout of vaccinations in the first half of 2021 and an easing of restrictions in the UK, the US, and the rest of the world is, however, a necessary condition for this to play out.’
CAD Exchange Rates Struggle despite Rising Oil Prices
The Canadian Dollar has also seen mixed movement in recent sessions. The Canadian Dollar has seen some support from higher prices of oil, Canada’s biggest export.
Oil prices have been boosted in recent sessions by continued hopes for oil production cuts, and for the oil market to recover when the coronavirus pandemic comes to an end.
However, other uncertainties are weighing on the Canadian Dollar instead, such as uncertainty over these oil outlooks.
For example, while oil prices gained today, many forecasters have been cutting their oil forecasts recently. This includes the IEA, which cut its 2021 oil demand forecast today.
According to Ey Moya from OANDA:
‘Crude demand forecasts will see many updates over the first half of the year as no one can get a handle on when the tightening of virus restriction will end. The IEA monthly report trimmed their 2021 global oil demand forecast by 0.3 million barrels, bringing the recovery a 5.5 million barrel per day boost to 96.6 million this year. Vaccine rollouts have mostly disappointed across the globe and new virus variant risks will hurt the recovery in the first quarter.’
What’s more, the Canadian Dollar is being weighed by weakness in the US Dollar (USD). This is because Canada’s economy is closely related to the US economy.
GBP/CAD Exchange Rate Forecast: Bank of Canada (BoC) Ahead
The Pound to Canadian Dollar exchange rate’s advance could accelerate if upcoming developments weigh further on Canadian Dollar appeal.
Tomorrow will see the Bank of Canada (BoC)
hold its January policy decision. Speculation has risen that the bank could offer a small interest rate cut or introduce other monetary policy stimulus in order to support the Canadian economy amid the coronavirus pandemic.
If the bank does become more dovish than expected, the Canadian Dollar could see fresh losses and GBP/CAD would find it easier to advance.
GBP/CAD could also advance more easily if upcoming UK data or news gives investors reason to see a fresh Pound rally.
Friday will see the publication of Britain’s latest retail sales and PMI results. If these impress investors they could boost hopes that Britain is weathering the coronavirus pandemic, and this would boost the Pound outlook as well.
Of course, the Pound outlook is also benefitting from coronavirus vaccine hopes. If Britain’s coronavirus situation shows other signs of improving, this would also boost the Pound to Canadian Dollar exchange rate.
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TAGS: Pound Canadian Dollar Forecasts