Pound Canadian Dollar (GBP/CAD) Exchange Rate Dips on Modest Uptick in Oil Prices

June 30, 2021 - Written by John Cameron

STORY LINK Pound Canadian Dollar (GBP/CAD) Exchange Rate Dips on Modest Uptick in Oil Prices

GBP/CAD Exchange Rate Falls as Oil Prices are Expected to Rise

The Pound Canadian Dollar (GBP/CAD) exchange rate dipped today despite the commodity-linked ‘Loonie’ benefiting from a modest uptick in oil prices. The pairing is currently fluctuating around CA$1.71.

This week saw crude oil prices hit $74, but this has not been enough to counter growing demand for the US Dollar, which has limited the appeal of the risk-sensitive Canadian Dollar.

Christopher Lewis, an analyst at FX Empire, commented on the latest oil prices:

‘The West Texas Intermediate Crude Oil market has initially pulled back a bit during the trading session on Tuesday, as we have seen a little bit of resilience in a market that had such a rough trading session on Monday. That being said, I think it is only a matter of time before this market goes looking towards the $75 level again, which is a large, round, psychologically significant figure and of course will attract a lot of headline attention, and therefore I think a lot of resistance.’

Today also saw the release of the latest Canadian GDP data for April, which fell by -0.3%. However, this was better than the forecast -0.8% contraction.

Kim Mackrael, an economist at MarketWatch, commented on the data:

‘The Canadian economy contracted in April as many parts of the country were under tough restrictions meant to contain a third wave of Covid-19.’

If oil prices continue to creep higher this week, however, then we would see confidence return to the Canadian economy along with demand for the ‘Loonie’.

Pound (GBP) Exchange Rate Dips as BoE Chief Economist Warns of ‘Nasty Surprise’ if Inflation is Not Tackled

The Pound (GBP) fell today after the Bank of England’s (BoE) Chief Economist, Andy Haldane, warned that the UK would be in for a ‘very nasty surprise’ if rising inflation was not nipped in the bud by the BoE.

Andy Haldane commented:

‘As soon as the cat is out of the bag, getting the cat back into the bag is jolly hard work.

‘It’s only secured, then, by central banks, monetary policymakers having to playing catch-up, and having to raise rates somewhat faster, or somewhat further, than people were expecting.’

Today also saw the UK’s GDP data revised downward for the first quarter. The British economy contracted at a worse-than-expected rate of -1.6% quarter-on-quarter.

Alastair George, the chief investment strategist at Edison Group, commented on the data:

‘The data are a reminder of the damage lockdowns wreaked on the economy, even as the UK government provided extensive fiscal support. UK GDP was 8.8% below its pre-pandemic level, one of the worst performances of the G7. A significant proportion of the fiscal support appears to have boosted the household savings rate, which remained elevated at 19.9%.’

With lockdown restrictions expected to be lifted on July 19, however, Pound investors are remaining cautiously optimistic about the outlook for the nation’s economy.

GBP/CAD Exchange Rate Forecast: Could a Hawkish BoE Boost the Pound?

Canadian markets will be closed tomorrow for the bank holiday Canada Day.

However, any uptick in oil prices would see the CAD/GBP exchange rate head higher as the outlook for the Canadian economy improves.

Pound (GBP) traders will await tomorrow’s publication of the latest UK manufacturing PMI for June. Any signs of growth in the UK’s manufacturing sector this month would be Pound-positive.

GBP traders will also keep a close eye on the speech from the Bank of England’s (BoE) Governor, Andrew Bailey, tomorrow.

If Bailey is notably hawkish about the outlook for the British economy, then the Pound Canadian Dollar exchange rate would head higher.

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TAGS: Forecasts