The Pound to Canadian Dollar exchange rate continued edging higher on Tuesday as UK price pressures had a positive influence on GBP trade. This allowed the pair to hold comfortably above the 1.66 level as the ‘Loonie’ Dollar failed to capitalise on Monday’s oil price spikes.
Pound (GBP) Strengthens after UK Inflation Beats Expectations
Demand for the Pound has been solid so far this week after last week’s slump. On Monday, GBP was given a sentiment boost by hopes of a transitionary Brexit period, as well as hopes that some citizens and businesses may somehow be able to keep their EU membership.
This allowed Sterling to hold its ground against the Canadian Dollar despite the day’s surprising oil news.
On Tuesday the Pound remained in demand thanks to November’s Consumer Price Index (CPI) results. UK inflation rose to 1.2% year-on-year, beating forecasts of 1.1%.
Canadian Dollar (CAD) Struggles to Benefit from Oil Price Surges
Good news for oil just keeps on coming this week, with the commodity holding its highest value in over a year.
Monday saw the exciting news that many non-OPEC oil producing nations, such as Russia and Mexico, had also agreed to cut oil production to help OPEC’s efforts to bolster demand and prices for oil throughout 2017.
Typically, this news would send the oil-correlated Canadian Dollar soaring. However, with just a day to go until the Federal Reserve’s predicted US interest rate hike, investors hesitated to buy into the risky ‘Loonie’ Dollar.
GBP/CAD Forecast to Advance after Wednesday’s Fed Decision
The Pound could recover more of last week’s losses against the Canadian Dollar in the coming days if the Federal Reserve hikes US interest rates on Wednesday as predicted.
Bets of a December Fed interest rate hike are at 97%, with traders widely anticipating that the Fed will improve interest rates for the first time since December 2015.
With the US Dollar’s potential to gain high, demand for risk-correlated currencies like the Canadian Dollar is limited. The Canadian Dollar could slump later in the week if the Fed hikes rates, and this would offer the Pound a significant opportunity to advance. Sterling may also be supported by upcoming UK data, such as November’s jobless claims and October’s employment results.
However, as a December Fed rate hike is already largely priced in, the US Dollar’s rate hike rally may be limited.
This could see the Canadian Dollar turn bullish later down the line as the ‘Loonie’ benefits from a delayed oil-correlated rally.
Canada’s local data is unlikely to inspire CAD movement this week, meaning that if oil prices slip from their highs the Canadian Dollar is unlikely to see any form of advance this week as the Pound and US Dollar strengthen.