Pound Canadian Dollar (GBP/CAD) Exchange Rate Wavers on Canadian Election Day

September 20, 2021 - Written by John Cameron

STORY LINK Pound Canadian Dollar (GBP/CAD) Exchange Rate Wavers on Canadian Election Day

GBP/CAD Exchange Rate Trades Sideways on Risk-Off Sentiment

The Pound Canadian Dollar (GBP/CAD) exchange rate is trending sideways this morning as both currencies face obstacles to bullish trading. Uncertainty over Canada’s federal election exacerbates CAD’s oil-related headwinds, while the Pound struggles to overcome a gloomy market mood on soaring gas prices.

At the time of writing, GBP/CAD is trading at C$1.7561, virtually unchanged from today’s opening levels.

Canadian Dollar (CAD) Lowers on Election Day

The Canadian Dollar (CAD) has fallen against the majority of its peers today as voters head to the polls. Direct polling between Justin Trudeau’s Liberals and Erin O’Toole’s Conservatives is neck and neck; but analysts are predicting a repeat of 2019’s election results as a result of supporter distribution.

Uncertainty over the country’s political future is causing some market volatility – but forex investors are mostly concerned with the economic implications of Canada’s oil trade. WTI crude is extending its losing streak for a third day, dropping over 2% to test $70 per barrel.

WTI prices have been led by risk-off sentiment amidst China’s Evergrande woes, as investors fear of a global economic slowdown. Amidst risk-aversion and Federal Reserve tapering expectations, the US dollar stands at monthly tops, making greenback-denominated WTI expensive for foreign buyers.

Exerting additional downside pressure on oil prices is a rise in US oil rigs and expectations of returning US Gulf oil output following two hurricanes. Hurricanes Ida and Nicholas damaged platforms, pipelines and processing hubs, shutting in most offshore production - restarts continued on Thursday, however, with just 28% of crude output offline.

Attention will now turn to the weekly US crude stockpiles data, due to be published later in the week. Movement in the ‘Loonie’ may also be driven by Thursday’s retail sales, which are expected to contract – potentially extending CAD downside.

Pound (GBP) Sinks on Rocketing Gas Prices

The Pound (GBP) has fallen against the majority of its peers this morning as a lack of UK data leaves Sterling vulnerable to losses. A risk-off mood depresses also GBP, alongside soaring gas prices.

The Evergrande crisis has had a big influence on risk sentiment, with Federal Reserve uncertainty, falling commodity prices and coronavirus all contributing. As the biggest global economy, activity in America weighs upon currency markets generally – speculation over when the Fed intend to taper asset purchases has drawn investors away from riskier currencies.

Gas prices in the UK are also skyrocketing, from around $40 per therm over the past decade to £162 per therm currently: in the past year, prices are up about 455%. Industrial plants are ceasing production as the UK business minister Kwasi Kwarteng urges Britons not to panic:

‘I was reassured that security of supply was not a cause for immediate concern within the industry,’ Kwarteng told the press on Saturday; ‘The UK’s gas system continues to operate reliably and we do not expect supply emergencies this winter.’

The spike in costs can be attributed to a stifled supply from Russia; gas platform closures in the North Sea, low European stockpiles and poor wind speed, resulting in less output from renewables. The final straw came earlier this week when one of two interconnector cables that brings power from France to the UK was damaged in a fire.

Despite ministers’ reassurances, investors have responded bearishly to the situation. Comments from Labour politicians and the Commons business select committee have exacerbated the UK’s gloomy outlook, blaming government for ‘poor planning’ and the country’s ‘over reliance on imported gas’.

GBP/EUR Exchange Rate Forecast: BoE Decision to Drive Movement?

Looking ahead, the main market-moving data this week is likely to be the Bank of England (BoE)’s interest rate decision on Thursday. The central bank is expected to keep interest rates unchanged, but is likely to address last week’s high UK inflation figures.

Investors will be hoping for a clear signal on when tapering may begin.

In the meantime, UK industrial trends orders are likely to fall, potentially denting GBP sentiment: a lack of data from Canada leaves the Canadian Dollar vulnerable to fluctuations in oil price dynamics. The results of today’s election are also likely to affect CAD strength.

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TAGS: Forecasts