Pound Canadian Dollar (GBP/CAD) Exchange Rate Falls as Oil Prices are Forecast to Improve

July 20, 2021 - Written by John Cameron

STORY LINK Pound Canadian Dollar (GBP/CAD) Exchange Rate Falls as Oil Prices are Forecast to Improve

GBP/CAD Exchange Rate Sinks as Hopes of Rising Oil Prices Boost ‘Loonie’

The Pound Canadian Dollar (GBP/CAD) exchange rate fell by -0.5% today following an upbeat forecast for oil prices from Goldman Sachs analysts, who said they see an ‘upside’ to prices following the OPEC+ supply deal. The pairing is currently fluctuating around CA$1.73.

As a result, the commodity-correlated ‘Loonie’ has benefited from an improved outlook for Canada’s largest and most lucrative export.

Commenting on the OPEC+ supply deal, Goldman Sachs said in a note:

‘The agreement had two distinct points of focus: a moderate increase in production which will keep the market in deficit in the coming months, as well as guidance for higher capacity which will be needed in coming years given growing under-investment.’

In addition, Canada’s vaccination rate has overtaken the United States. This means that the outlook for the Canadian economy is looking more positive.

Canadian manufacturing is also leading the nation’s economy out of recession, with expectations rising for a steady economic recovery later this years.

Alex Kotsopoulos, an analyst with RSM Canada, said:

‘Canada's manufacturing sector has almost singlehandedly pulled the country out of recession in recent months, and this strong performance, coupled with promising signs from other areas such as real estate and energy, suggests that better days are ahead for the economy.’

Pound Exchange Rate Sinks as UK Covid-19 Infections Surge, Threatening New Lockdown

The Pound (GBP) fell today due to increasing fears over a new lockdown as UK Covid-19 infections and hospitalisations threaten to overwhelm the NHS.

Jeremy Thomson-Cook, chief economist at Equals Money, said:

‘Sterling is looking a little sickly this morning as markets both take money out of risky bets and doubts increase as to the veracity of the government’s program of easing restrictions during a spike in case numbers.’

As a result, confidence in the UK’s economic recovery has dwindled on concerns that the lifting of lockdown measures could be short-lived.

The Bank of England (BoE) also remains divided on when to cut stimulus, with rate-setters warning of tightening monetary policy prematurely despite the threat of inflation.

Jonathan Haskel, an economist a professor of economics at Imperial College Business School, said:

‘Tight policy is not the right policy. In the immediate term, the risk of a pre-emptive monetary tightening curtailing the recovery continues to outweigh the risk of a temporary period of above-target inflation.’

This economic uncertainty has limited the GBP/CAD exchange rate today, with worries that a surge in Covid-19 hospitalisations leading to another economy-damaging lockdown.

GBP/CAD Exchange Rate Forecast: UK PMI Data in Focus

Canadian Dollar (CAD) traders will keep a close eye on oil prices this week. If forecasts predict an improvement in the months ahead, then the CAD/GBP exchange rate would head higher.

In Canadian economic news, tomorrow will see the latest housing data for June. Could an uptick in house prices see the ‘Loonie’ head higher?

Pound (GBP) traders will look ahead to Friday’s data, with the latest consumer confidence and PMI figures for manufacturing and services for July providing an insight into the health of the nation’s economy.

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