Pound Canadian Dollar Exchange Rate Rises as Oil Prices Fluctuates

November 11, 2021 - Written by John Cameron

STORY LINK Pound Canadian Dollar Exchange Rate Rises as Oil Prices Fluctuates

Pound Canadian Dollar Exchange Rate Boosted by Unstable Oil

The Pound Canadian Dollar (GBP/CAD) exchange rate rose overnight as fluctuating oil prices caused weakness in the Canadian Dollar.

The GBP/CAD exchange rate has continued to rise throughout the session and is currently at around $1.6863.

Canadian Dollar (CAD) Stumbles amid Volatile Oil Prices

The Canadian Dollar is retreating this afternoon as continuing instability in the price of oil continued to affect the commodity-tied currency.

Oil prices are now steady following a fall yesterday to $82 a barrel. This drop was likely prompted speculation that the US may dip into its crude oil stockpiles to combat the rising inflation in energy prices.

President Joe Biden has asked both the National Economic Council and Federal Trade Commission to help reduce energy costs.

A decision by the US to make use of its crude oil stockpile is likely to prompt further movement in the commodity-tied ‘Loonie’.

Pound (GBP) Dips as UK GDP Prints below Forecast

Whilst it is faring well against a Weaker Canadian Dollar, the Pound (GBP) fell against the majority of its other peers this morning as the UK’s GDP figures printed below expectation.

The UK’s economic growth slowed in the third quarter. According to today’s GDP data, growth slowed to 1.3% in comparison to the 1.5% forecast. Growth in the second quarter had been 5.5%.

Ongoing shortages of staff and supply issues hampered growth of the UK’s service sector. The sector saw a fall to 1.6% in the third quarter compared to the 6.5% leap from the second quarter. The UK also saw slower growth in its construction and manufacturing sectors, all of which is likely to drive further movement in the Pound.

This weaker growth could also affect monetary policy decisions by the Bank of England (BoE) in the coming months. BoE Governor Andrew Bailey has previously said that an interest rate rise in December was possible, although it is likely that this may now be delayed.

Suren Thiru, head of economics at the British Chambers of Commerce, had the following analysis following the release of today’s data:

‘Although monthly output rebounded through the quarter from July’s contraction this is more likely to reflect a temporary boost from restrictions easing, rather than a meaningful improvement in the UK’s underlying growth trajectory.’

‘With the headwinds facing the UK economy growing, we would caution the Bank of England against raising interest rates in the near term to avoid destabilising an already brittle recovery.’

There is no further significant data this week for GBP, so it’s likely that GDP growth data will continue to drive the Pound’s movement. Tense talks between the UK and EU over the Northern Ireland protocol may also affect confidence in Sterling, with Brexit Minister Lord Frost continuing to threaten further escalation by the UK.

GBP/CAD Exchange Rate Forecast: Will Canadian Inflation Climb Again?

Looking ahead, there is no further significant data for either currency this week. We may see the below-forecast UK GDP data may continue to affect the GBP/CAD exchange rate.

Next week will bring fresh employment, retail sales, and inflation data for the UK which may cause further movement for GBP.

The Pound could also face additional headwinds as the UK’s behaviour is under tight scrutiny, both domestically and internationally. Prime Minister Boris Johnson will be hoping to project a united front at the COP26 conference, whilst also battling allegations of ‘sleaze’ and division within his cabinet.

News that Johnson will travel to France to meet President Macron regarding fishing may also see the Pound affected.

In Canada, next week will see the release of Canada’s consumer price index. Inflation in Canada rose to 4.4% in September for the consecutive third month, and another increase in October may boost the Canadian Dollar if it is seen as increasing the odds of a Bank of Canada (BoC) rate hike in the near-term.

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