With Iran set to add a significant amount of crude oil to global markets, will the resultant fall in prices cause the Canadian Dollar to depreciate?
Canadian Dollar Exchange Rates Stronger on Fed Policy Outlook
Last week, a combination of rising crude oil prices and reduced bets regarding Federal Reserve policy outlook caused the Canadian Dollar to strengthen considerably.
Irrespective of US stockpiles, which were shown to have risen beyond expectations on several occasions, crude oil prices advanced considerably last week. The appreciation was linked to hopes of a deal to be struck between all oil producing nations to collaborate on reducing output to raise prices. However, this seems somewhat pie in the sky, with several nations showing no sign of willingness to cooperate.
A large shift in risk demand, which was partly the result of rising crude prices, also aided ‘Loonie’ (CAD) gains last week. Risk appetite improved significantly thanks to a combination of diminished Federal Reserve rate hike bets and expansive stimulus measures from the People’s Bank of China (PBoC).
With global economic conditions leaving little room for manoeuvre, the prospect of long-term delays to a Federal Reserve rate hike has provided a boost to demand for the Canadian Dollar. This is thanks to the prospect of delays to wider policy divergence and the chance of more lucrative cross-border trade.
Pound Sterling Exchange Rates Fluctuated Last Week on Political Uncertainty
With the forthcoming EU referendum at the forefront of investor focus, the Pound has been highly reactionary to political developments. However, ‘Brexit’ news has not had a comparable impact to the immediate aftermath of the announcement of the June 23rd vote.
Although domestic data is not having as strong an impact on Sterling amid political uncertainty, improvements in Industrial Production and Manufacturing Production output gave a boost to demand for the UK asset.
Additionally, a slight narrowing of the UK’s trade deficit allowed the Pound to make steady gains.
The Euro’s eventual depreciation in response to the aggressive policy measures adopted by the European Central Bank (ECB) is also supportive of GBP gains. One of the major concerns of a ‘Brexit’ is that the Pound will devalue markedly. If the Euro remains comparatively low, however, the impact of Sterling losses could be greatly reduced.
GBP/CAD Exchange Rate: Crude Oil Price Decline Provokes Gains
On Monday the Pound Sterling to Canadian Dollar exchange rate advanced in response to falling crude oil prices.
Crude oil fell below US$40 a barrel again after Iran announced a massive addition to global stock piles. Iran’s oil minister, Bijan Zanganeh, said on Sunday that the Islamic Republic would only cooperate with other oil producing nations to reduce output once its own production levels reach 4 million barrels a day.
With uncertainty as to whether oil prices have bottomed out, there is a high chance that the Canadian Dollar will hold a weak position for some time. Even if crude oil prices have touched the lowest level in 2016 already, prices are set to remain cool for the remainder of the year.
The British Pound got a little boost on Monday after US President Barack Obama urged the UK to remain as part of the European Union. Despite protests from London Mayor Boris Johnson, Obama’s far-reaching influence is good news for those campaigning for the UK to remain a member of the EU.
GBP/CAD Exchange Rate Forecast: Political Uncertainty to Temper GBP
Although political developments regarding the EU referendum are not having the same impact on the Pound as in the immediate aftermath of the announcement of the June 23rd vote, uncertainty is still weighing on investor confidence. As such, the British asset is not expected to rack up any notable, sustained gains.
However, the outlook for the Canadian Dollar is also bleak, with crude oil prices showing signs of resuming the bearishness seen at the tail-end of 2015. The main focus for traders, in terms of Canadian ecostats this week, will be February’s Consumer Price Index.
For those invested in the Pound, trader focus will be dominated by Chancellor George Osborne’s budget speech to Parliament. The Bank of England (BoE) interest rate decision is not expected to have a massive impact given the high likelihood that policymakers will want to leave outlook unchanged at this time.
Over the past seven days, the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate was trending within the range of 1.8784 to 1.9133.
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