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Tanking Crude Prices sees GBP/CAD Exchange Rate Rally

Canadian Dollar Currency Forecast
  • GBP Exchange Rates Surge – Retail sales growth exceeds predictions
  • CAD Conversion Dives – Crude oil prices tank
  • Market Sentiment Damp – Falling commodities and global stocks weigh on demand
  • GBP/CAD Forecast to Hold Gains – Sterling sentiment improved dramatically

GBP Exchange Rates Hold Strong Position but Cool from Intraday Highs on Profit Taking

The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate rallied by around 0.9% on Thursday afternoon.

In recent days the British Pound has shaken off the title of ‘worst performing currency’, having rallied significantly in response to easing ‘Brexit’ concerns. Whilst EU referendum opinion polls have thrown up divergent results, the most recent suggest that those campaigning to remain in the EU have garnered a commanding lead.

Jake Cordell, reporting for City A.M stated; ‘Opinion polls in the run-up to the referendum have been highly volatile, and pollsters’ reputations aren’t what they used to be following the 2015 general election disaster. However, investors clearly still pay them attention. Telephone polls – which the Ipsos Mori one was – have also consistently shown the Remain side to have a bigger lead in the campaign, while online surveys put the sides much closer, casting doubt over which ones are the most accurate barometers of how the UK will vote.’

Also highly supportive of demand for Pound Sterling today was better-than-expected domestic data. April’s Retail Sales growth was forecast at 0.7% on the month, but the result actually showed a 1.5% sales increase. On the year, April’s Retail Sales surged by 4.2%, eclipsing the median market forecast 2.0%.

‘Despite the doom and gloom in the headlines, retail sales are in good shape,’ said Alan Clarke, an economist at Scotiabank. ‘This marks a great start to Q2 and could help to avert too much of a slowdown in GDP growth.’

In the immediate aftermath of the retail sales report the British Pound surged versus its most traded peers. However, a spate of trader profit-taking caused Sterling to cool from intraday highs as the uptrend opened up some attractive selling positions. Despite this, the UK unit is holding a position of strength versus rivals.

The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate dropped to a low of 1.9001 during Thursday’s European session.

Canadian Dollar Exchange Rates Dive after US Crude Inventories Eclipsed Predictions

After the publication of the latest set of Federal Open Market Committee (FOMC) interest rate decision minutes, the Canadian Dollar dived versus its currency rivals. The minutes indicated that policymakers were prepared to consider hiking rates in June provided that the recent economic slowdown was just a blip.

‘Investors are now increasing the possibility of a June hike,’ said Chris Gaffney, president of EverBank World Markets. ‘The Fed is saying that the markets are too pessimistic.’

This weighed on demand for the ‘Loonie’ (CAD) amid concerns of widening divergence between the Federal Reserve and Bank of Canada’s (BOC) policy outlook. Additionally, the US Dollar is likely to surge in value when the Fed hikes the official cash rate. This will have a detrimental impact on Canadian trade, especially given pressing concerns of undervaluation.

Also weighing heavily on demand for the Canadian Dollar was a significant drop in crude oil prices following inventories data out of the US. Thus far during Thursday’s European session the price of Brent Crude declined by over -2.2%, and WTI Crude softened by close to -1.9%. US Dollar strength and increased prospects of a near-term rate hike also weighed on crude prices.

‘When the Fed statement opened the door to a June interest rate hike, the Dollar increased and oil prices dropped,’ said oil analyst Michael Poulsen. ‘Fed members’ voices continue to be mixed, however, so whether the hike comes up next month remains uncertain in our view.’

The wildfire in Canada’s oil sands region contributed to CAD losses and the drop in oil prices. Some experts forecast that the fire will cost Canada’s oil exports around $760 million.

‘These are big numbers,’ Kevin Birn, an analyst at IHS Energy, said. ‘The industry was already feeling the impact of a very low price environment in the first quarter of the year, with prices lower than in the rest of the world.’

The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate reached a high of 1.9208 during Thursday’s European session.