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Pound Canadian Dollar (GBP/CAD) Exchange Rate Falls as Rising Oil Prices Boost ‘Loonie’

June 1, 2021 - Written by John Cameron

GBP/CAD Exchange Rate Sinks as Outlook for Canadian Economy Improves

The Pound Canadian Dollar (GBP/CAD) exchange rate fell by -0.5% today as the commodity-correlated ‘Loonie’ benefits from soaring oil prices. Brent is currently up by over 2% and is trading around $71 a barrel, while WTI is also surging at above $68 per barrel. The pairing is currently trading around CA$1.70.

The Canadian economy, which is highly reliant on oil exports, has benefited from the rising value of oil. As a result, this has driven up the demand for the oil-sensitive ‘Loonie’.

Olaf van der Heuvel, CIO at Aegon AM NL, commented on the recent surge in oil prices:

‘Commodity prices are in the spotlight because of rising inflation. Economies are reopening, so the demand for oil is increasing. However, expected oil demand in 2021 is still about five million barrels per day below 2019 levels. During the Covid-19 crisis, OPEC and other major oil producing countries such as Russia absorbed the drop in demand for crude oil by significantly reducing production. This removed 10% of supply from the market.’

In Canadian economic news, today saw the release of the latest Markit manufacturing PMI for May, which fell below consensus but remained strong at 57.

Shreeya Patel, an economist at HIS Markit, who compile the statistics, commented on the report:

‘May PMI data reveals another robust expansion across Canada's manufacturing sector with solid upticks in output and new orders registered. Policymakers will particularly welcome the stronger uplift in workforce numbers after the country saw the unemployment rate climb post-pandemic.’

Pound (GBP) Exchange Rate Sinks on ‘Cautious Optimism’ Ahead of June’s Final Easing of Lockdown Measures

The Pound (GBP) fell today despite business minister Paul Scully’s comment that there was ‘cautious optimism’ about June 21, the date for the final lifting of Covid-19 restrictions.

Mr Scully said:

‘One thing that we saw last year, before Christmas, was the stop-start nature just didn’t work for businesses and cost them more. So we’ve got to get it absolutely right. People’s jobs and livelihoods depend on it.’

Prime Minister Boris Johnson also reiterated that there was no evidence to delay the reopening of the UK economy later this month.

A Government spokesman commented on behalf of Downing Street:

‘The prime minister has said on a number of occasions that we haven’t seen anything in the data but we will continue to look at the data, we will continue to look at the latest scientific evidence as we move through June towards 21 Jun.’

As a result, Pound investors are more confident about the final easing of restrictions next month. But with rising numbers of Covid-19 infections, UK markets are also retaining a degree of caution.

In UK economic data, the latest manufacturing PMI rose to 65.6, its highest level since the survey began in 1992.

Rob Dobson, the director at IHS Markit, commented on the statistic:

‘The UK PMI surged to an unprecedented high in May, as record growth of new orders and employment supported one of the steepest increases in production volumes in the near 30-year survey history.’

GBP/CAD Exchange Rate Forecast: Could Rising Oil Prices Boost the Canadian Dollar This Week?

Pound (GBP) investors will monitor tomorrow’s release of the latest UK mortgage approvals data for April.

Any improvement in the outlook for Britain’s economy would further contribute to Sterling’s strength this week.

However, if Covid-19 infections continue to edge higher this week, then doubts about June’s further easing of lockdown measures would increase. This would weigh on the GBP/CAD exchange rate.

Canadian Dollar (CAD) traders are awaiting tomorrow’s release of the latest Canadian building permits report for April.

If this confirms forecasts and falls by -4.8%, then some of the ‘Loonie’s gains would be compromised.

The Pound Canadian Dollar exchange rate could suffer, however, if oil prices continue to head higher. Rising oil prices would further bolster demand for the commodity-linked CAD.

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