Pound Canadian Dollar (GBP/CAD) Strengthens as Oil Prices Fall
The Pound Canadian Dollar (GBP/CAD) exchange rate is surging today as concerns over the efficacy of existing vaccines against the Omicron coronavirus variant have again rattled markets and sent oil prices tumbling.
After pausing yesterday as Omicron fears momentarily eased, GBP/CAD has resumed the rally from the end of last week to trade at CA$1.7038 at the time of writing, around 0.5% up on the day’s opening levels.
Canadian Dollar (CAD) Tumbles as Omicron Fears Dent Oil Prices
After some respite on Monday, the Canadian Dollar (CAD) is sliding today as fears over the Omicron coronavirus variant rattled markets and drove oil prices sharply lower.
Concerns heightened again after the chief executive of vaccine maker Moderna warned the efficacy of current vaccines will likely be lower against Omicron than other variants of coronavirus.
As reported in the Financial Times, Stéphane Bancel said:
“There is no world, I think, where [the effectiveness] is the same level … we had with Delta.
“I think it’s going to be a material drop. I just don’t know how much because we need to wait for the data. But all the scientists I’ve talked to … are like ‘this is not going to be good’.”
Bancel added that more data on vaccine effectiveness against Omicron should be available within a fortnight, and that it could be months before a vaccine with a higher efficacy could be produced, warning:
“[Moderna] and Pfizer cannot get a billion doses next week. The maths doesn’t work. But could we get the billion doses out by the summer? Sure.”
With the prospect of renewed restrictions and lockdowns, oil prices have plummeted on the threat of lower demand.
WTI crude fell around 3% on Tuesday morning to $68 a barrel, which triggered a sharp fall in the Canadian Dollar.
Despite recovering slightly yesterday, oil prices had already plunged around 12% on Friday following the news of the Omicron variant.
The weakening demand outlook has also fuelled speculation that OPEC+ may delay plans to increase supply in January.
Pound (GBP) Bolstered by Rival’s Weakness
The Pound (GBP) is broadly making gains on Tuesday, strengthening significantly against its more risk-sensitive peers.
Souring market sentiment has led to weakness in Sterling’s peers, allowing GBP to make solid gains.
However, ongoing UK-EU deadlocked talks over the Northern Ireland protocol, and the threat of high Covid-19 cases and the spread of the Omicron variant are limiting strength in the Pound.
Restrictions in the UK remain loose with mandatory face coverings and stricter travel rules, but concerns linger that the spread of the Omicron variant could lead to tighter restrictions.
14 cases of the latest variant of concern have been detected, fuelling fears of Omicron spreading rapidly going into winter.
Expectations for a rate hike from the Bank of England (BoE) have also adjusted due to Omicron’s emergence, with increasing uncertainty whether the central bank will raise rates at its December policy meeting.
Pound Canadian Dollar Forecast: GBP/CAD to Extend Gains amid Downbeat Mood?
The Pound Canadian Dollar exchange rate may extend its gains in the coming days if market jitters over the potential impact of the Omicron variant continue.
Risk-off trade may continue weakening oil prices on expectations for lower demand, which could in turn dent the commodity-linked ‘Loonie’.
However, any indications of a more positive mood returning could support the Canadian Dollar again, with a statement from Oxford University, who developed a vaccine with AstraZeneca, saying:
“Despite the appearance of new variants over the past year, vaccines have continued to provide very high levels of protection against severe disease and there is no evidence so far that Omicron is any different.
“However, we have the necessary tools and processes in place for rapid development of an updated COVID-19 vaccine if it should be necessary.”
Canadian GDP this afternoon may limit CAD exchange rate losses this afternoon as forecast for third quarter GDP point to 0.5% growth, up from the second quarter contraction of -0.3%.
In the absence of notable UK data releases, the Pound will remain sensitive to coronavirus developments, UK-EU talks, and BoE rate hike speculation.