The Canadian Dollar to Pound (CAD/GBP) exchange rate has been trending lower as the price of crude oil dips even further. Meanwhile, the Canadian Dollar to US Dollar (CAD/USD) currency pair has also recorded losses as the ‘Buck’ enjoys gains from favourable data and Federal Reserve rate hike speculation.
As a commodity currency, the Canadian Dollar is closely linked to its largest export, crude oil. However, the recent tumble of oil prices has pressured the ‘Loonie’ lower and made it unable to gain against other currency majors.
US Dollar Exchange Rate Testing Five-Year High
Meanwhile, the US Dollar story has continued to strengthen. The ‘Buck’ has been resilient in recent months with investor sentiment in the currency generally buoyant. At present, the US Dollar is hovering near a five-year high as speculation mounts that US data will be favourable and therefore pressure the Federal Reserve to hike rates sooner.
Forex expert Naohiro Nomoto commented: ‘There’s nothing else worth investing in other than the Dollar from an economic-fundamental perspective. The Dollar may test a new high if the employment data this week are also strong.’
Pound Enjoys Support versus Canadian Dollar on European Commission Growth Forecasts
Tuesday saw UK growth forecasts raised by the European Commission offering CAD/GBP little support. The commission announced that due to ‘robust’ consumer spending, the UK would continue to grow at a healthy pace.
The report stated: ‘The strong growth enjoyed in the first half of 2014 is expected to continue, driven by private consumption and investment. Net exports are projected to detract from growth. Unemployment is expected to continue to fall while inflation is projected to remain below 2%. The budget deficit is forecast to decline to 3.4% of GDP [Gross Domestic Product] by 2016 and the Government debt to GDP ratio is expected to continue to edge up.’
With this week’s Bank of England interest rate announcement scheduled for Thursday, the GBP/CAD and GBP/USD exchange rates are likely to see major fluctuations. Furthermore, the European Commission’s upgrade in UK growth prospects could place pressure on the BoE to hike interest rates sooner rather than later.
Canadian Dollar Exchange Rate Records Five-Year Low
The ‘Loonie’ has sank to a five-year low on Tuesday as oil prices continue to hinder the commodity currency. Crude oil prices have dropped to a three-year low, catalysed by Saudi Arabia’s announcement that it would cut oil costs in the US.
With the majority of Canada’s exports destined to reach the US, Saudi Arabia’s competitiveness doesn’t bode well for the Canadian Dollar exchange rate.
‘Loonie’ Tumbles Below 88 Cents on Saudi Arabia Oil Cuts
The Canadian Dollar has sunk below 88 US cents in the CAD/USD exchange rate following Saudi Arabia oil cuts. Up until July, oil was worth $100 per barrel; however, like other commodities crude values have dropped. Other commodity currencies such as the Australian Dollar (AUD) and New Zealand Dollar (NZD) have both suffered as their largest exports iron ore and dairy have seen their values cut by up to 50% since the beginning of the year.
Analyst Fawad Razaqzada commented: ‘A snowballing effect is what we are seeing in crude oil price today. News that Saudi has cut its asking price to customers in the US suggests even the largest OPEC producer is now worried about its market share. This does not bode well for the future of the cartel.’
Oil prices look set to continue to decline with the latest Saudi Arabia cut forcing the hand of other suppliers. Furthermore, BOC Governor Stephen Poloz recently stated that he believes the Canadian recovery could be severely affected if the price of oil doesn’t recover some of its losses in the near future.
Canada’s Merchandise Trade Balance Jumps to Surplus in September
In a day of falling oil prices, one small pocket of hope for the Canadian economy is the trade surplus in September. The figure rocketed to 0.71B from the former -0.46B, despite economists’ forecasts of -0.40B as exports recovered. Governor Poloz has recently stated that a rebound in exports could encourage business investment and push Canadian exports towards full capacity.
However, the surplus is unlikely to impact the downward spiral of the ‘Loonie’ from falling oil prices. Sutton continued: ‘The near-term Canadian Dollar outlook has deteriorated materially and the downward trend is too strong to fight.’
Other currencies have also suffered from weaker oil prices; the Norweigan Krone dropped by over 1% versus the Euro. Analyst Magne Oestnor commented: ‘Krone buyers are uncertain about how the lower oil prices and lower growth will affect the economy. We expect the Krone to weaken and we see it staying weak for quite some time.’
‘Loonie’ Continues to Suffer Oil Woes – Unemployment Figures Anticipated
Both the CAD/GBP and CAD/USD exchange rates have softened further on Wednesday as markets continue to adjust to Tuesday’s Saudi Arabia oil developments. In other Canadian news, Unemployment Rate figures are scheduled for release on Friday which could pressure the ‘Loonie’ lower.
Recently BOC Governor Stephen Poloz suggested that the Canadian job market may be difficult for young people to break into, and instead suggested youths should work for free.
The BOC Governor hopes that unpaid work for youngsters could help increase their appeal to employers and potentially boost employment levels in Canada.
The Canadian unemployment rate fell to 6.8% in September, the lowest level of joblessness since December 2008. However, data shows that unemployment levels for those between the ages of 15-24 has reached 13.5%. Friday’s data release is expected to see the Unemployment Rate in Canada remain at 6.8%, while Net Change in Employment figures are forecast to contract by -5.0K.
Norweigan Krone and Canadian Dollar Feel Full Effects of Oil Cuts Hitting Five-Year Lows
The effect of the oil cuts has seen Norway’s Krone (NOK) fall to its lowest level since early 2009, whilst the Canadian Dollar is also residing at a five-year low. Forex expert Vassili Serebriakov suggests that the Canadian Dollar: ‘is the currency under pressure here, that’s been the obvious loser, and the Norwegian Krone as well.’
However, the oil slump could continue with the potential to pull down the Canadian Dollar exchange rate further. At the moment, trading of the ‘Loonie’ is overshadowed by speculation of whether lower oil prices are here to stay. Strategist Greg Anderson stated: ‘It’s a tricky trade and it all depends on whether you think the oil price here is permanent or a temporary apparition.’
UK PMI Causes Pound Sterling Exchange Rate Softening
The CAD/GBP exchange rate saw fluctuations when Markit’s latest UK Services and Composite Purchasing Managers Indexes fell below economists forecasts. The composite gauge fell to 55.8 in October from 57.4.
Canadian Dollar Sinks versus US Dollar and Pound
Both the Canadian Dollar and the Pound softened against the US Dollar on Wednesday when US employment data showed a better-than-expected improvement in the labour market. US ADP Employment Change figures showed 230K job creation in October, more favourable than the previous 213K.
In contrast, the US Non-Manufacturing Composite index fell lower than economists’ had forecast to 57.1 from 58.6.
US Politics Support US Dollar Exchange Rate
The US Dollar has also enjoyed strength from the latest midterm elections that saw Republicans gain control of the Senate. Republicans are renowned for having an impact on the market, as Brad Brechtel suggests: ‘It’s always been a risk-positive kind of thing whenever Republicans re-gain control of the government because they have more market-friendly policies.’
Canadian Growth Forecasts Strengthen Offering ‘Loonie’ Exchange Rate Support
The US Dollar has softened slightly on Thursday allowing both the Pound and Canadian Dollar to advance against it. Furthermore, Statistics Canada has upwardly revised its economic growth estimate to 3.6% from 3.1% offering some support for the ‘Loonie’.
Industry expert David Tulk suggests the newly revised figure ‘help[s] allay some of the concern that the Canadian economy has been underperforming.’ Thursday will see the release of the Canadian Ivey Purchasing Managers Index which is expected to soften in October from 58.6 to 57.5.
Canadian Dollar (CAD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,Canadian Dollar , 1.8211,
US Dollar,,Canadian Dollar , 1.1384,
Euro,,Canadian Dollar , 1.4250,
Australian Dollar,,Canadian Dollar , 0.9801,
New Zealand Dollar,,Canadian Dollar , 0.8813,
[/table]
