Rising Oil Prices Keeps Loonie Supported

Pound-Canadian Dollar could rebound if BoE policymakers turn more hawkish, although firmer oil prices may continue to support the Loonie.

The Pound to Canadian Dollar (GBP/CAD) exchange rate drifted lower on Wednesday as a fresh rise in oil prices underpinned the ‘Loonie’.

DAILY RECAP:

The Canadian Dollar (CAD) edged higher on Wednesday, with the commodity-linked currency drawing support from a fresh uptick in global oil prices.

Brent crude climbed back above $101 a barrel as concerns over potential storm-linked supply disruptions in the Gulf of Mexico and escalating tensions between Saudi Arabia and Yemen’s Iran-backed Houthis outweighed signs of improving Middle Eastern crude exports.

The rise in oil prices provided a welcome boost for the ‘Loonie’, which remains closely correlated with movements in the energy market given Canada’s position as a major oil producer and exporter.

CAD had already recovered some ground on Tuesday after data showed Canada’s trade surplus widened considerably more than expected in August, reaching C$4.2bn as exports to the US surged ahead of the latest round of tariffs.

The Pound (GBP) traded without a clear directional bias on Wednesday, with a relatively quiet UK economic calendar limiting liquidity in the currency.

Rising UK gilt yields did apply some modest pressure to Sterling, however, with the rise in borrowing costs raising fresh doubts about the fiscal headroom available to Chancellor John Healey in his upcoming Autumn Budget.

However, Sterling’s losses were simultaneously tempered by growing expectations that the Bank of England (BoE) will deliver an interest rate hike in November.

Near-Term GBP/CAD Forecast: Hawkish BoE Commentary to Strengthen Sterling?

Turning to the second half of the week, the Pound to Canadian Dollar (CAD/USD) exchange rate will likely be influenced by scheduled speeches from several BoE policymakers.

These speakers include two of the three members of the Monetary Policy Committee – Megan Greene and Huw Pill – who voted for an immediate rate hike last month, as well as Governor Andrew Bailey.

If Bailey joins his more hawkish colleagues in talking about the need for tighter monetary policy, it’s likely to reinforce expectations for a November rate hike and lift Sterling.

In the meantime, movement in the ‘Loonie’ is likely to remain firmly linked to oil price dynamics, with CAD likely to remain underpinned so long as oil prices continue to climb.

Our currency coverage draws on live market data, official economic releases and published bank research.