Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Slides as OPEC-Led Cuts Support Oil Markets
UPDATE: The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate slumped today. This left the pairing trading at around CA$1.6984
The oil-sensitive ‘Loonie’ continued to make gains today after OPEC forecast a ‘gradual recovery’ in demand for oil.
OPEC also noted that the record supply cuts from major oil producers have already helped to rebalance oil markets.
In its monthly reports, OPEC stated demand for oil would decline by 6.4 million barrels per day (bpd) in the second half of this year. This offered CAD support as this was less than the 11.9 million bpd seen in the first six months of 2020.
In a statement, the Organization of the Petroleum Exporting Countries said:
‘The oil market was strongly supported by a reduction of the global crude oil surplus, thanks mainly to the historic voluntary production adjustment agreement.’
Pound Sterling Canadian Dollar (GBP/CAD) Exchange Rate Falls as Oil Prices Buoyed On Clinical Trial
The Pound Sterling Canadian Dollar (GBP/CAD) exchange rate edged lower today. This left the pairing trading at around CA$1.7000.
Oil prices rose on Wednesday as hopes for an economic recovery increased, buoying the ‘Loonie’.
Sentiment improved after a clinical trial showed a cheap steroid could help some critically ill due to the coronavirus.
However, fears of a second wave of the virus continued to cap any gains. Concerns about the spread of the virus in some areas heightened after record-high Covid-19 cases in six US states.
According to Standard Chartered analysts:
‘We think the oil market is not currently pricing in a significant probability of either second waves of coronavirus cases in key consumers and the associated lockdowns, or anything less than a rapid return to economic business-as-usual.’
Sterling (GBP) Slides as Inflation Fall to Four-Year Low
The Pound weakened against the Canadian Dollar today after disappointing data revealed inflation plummeted.
British inflation slumped to its lowest level since June 2016 in May as the coronavirus pandemic weighed on demand from the global economy and sent oil prices lower.
Weak inflation would give the Bank of England (BoE) space to ramp up its stimulus programme when it meets tomorrow. The bank is expected to announce an increase of £100 billion of bond-buying stimulus.
According to Simon Harvey, currency analyst at broker Monex Europe:
‘Sterling is struggling to join the G10 rally today as stalling Brexit negotiations keep the macroeconomic outlook uncertain and the upside for the currency limited. This morning’s inflation data hasn’t helped the pound’s prospects but instead adds to the anticipation that the Bank of England will extend its Asset Purchase Facility tomorrow.
‘The depth and duration of such extension are unknown at present, but given the recent run of data, the Bank could have a few tricks up its sleeve’
Pound Canadian Dollar Outlook: OPEC and BoE in Focus
Looking ahead, the Canadian Dollar (CAD) could edge higher against the Pound (GBP) as a panel led by OPEC is due to meet tomorrow.
OPEC is expected to discuss more ways to strengthen and review compliance with output cut promises. If oil producers agree to extend output cuts, it will buoy oil prices and support the oil-sensitive ‘Loonie’.
Meanwhile, Sterling could slide further ahead of Thursday’s Bank of England (BoE) monetary policy meeting.
If the bank is overly dovish about the economic outlook and focuses on weak data releases like today’s dire inflation reading, the Pound Canadian Dollar (GBP/CAD) exchange rate will fall.