The Pound Sterling to Canadian Dollar exchange rate rose slightly on Monday January 27 leaving the pairing trading around CA$ 1.7218.
CAD remained muted on Monday as oil prices extended last week’s declines.
The risk-off mood amongst investors saw prices fall below $ 60 for the first time in nearly three months.
Fears surrounding the Wuhan coronavirus sent prices lower as more businesses in China were forced to close.
This prompted expectations that oil demand would slow which weighed on the oil-sensitive Canadian Dollar.
Commenting on this, chief executive at Sun Global Investments, Mihir Kapadia noted:
‘Investors will react quickly to any sign of negativity and this is no exception as China announces that the issue has become an emergency. This could keep oil prices fragile until the coronavirus shows signs of slowing down.’
Today saw the death toll for the virus rise above 80, causing the Chinese government to extend the Lunar New Year holiday to 2 February in an attempt to keep people at home and prevent the virus from spreading further.
The fears over slowing global oil demand have prompted speculation that OPEC could consider deepening production cuts.
However, Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman Al-Saud noted:
‘[Markets are being] primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite [the virus’] very limited impact on global oil demand.
‘Such extreme pessimism occurred back in 2003 during the SARs outbreak, though it did not cause a significant reduction in oil demand.’
Pound Sterling Exchange Rates Flat Ahead of BoE Rate Decision
Sterling was left flat against the ‘Loonie’ ahead of Thursday’s Bank of England (BoE) monetary policy meeting.
Many analysts have argued the bank’s decision is too close to call, with markets predicting a 55% chance of a cut.
While upbeat economic data releases last week sparked hope the bank would leave rates on hold, previous weak data and dovish statements from BoE policymakers left the door open for a cut.
Commenting on this, Deutsche Bank strategist, Jim Reid noted:
‘This [BoE] meeting follows a run of fairly weak economic data over the last few weeks but with last week’s strong employment data and better than expected flash PMIs confusing the picture.
‘Our economists have expected a cut for a good couple of months now but markets are closer to 50:50.’
Pound vs Canadian Dollar Outlook: Bank of England in Focus
Looking ahead, due to the lack of notable economic releases, it is likely oil prices will remain a major driver for the Canadian Dollar (CAD).
The oil-sensitive ‘Loonie’ is likely to remain under pressure against the Pound (GBP) if Wuhan virus fears continue to weigh on oil prices.
Meanwhile, Sterling could slump as the Bank of England (BoE) meeting remains the main focus for investors this week.
If the chances of the bank slashing rates increase over the next few days, it will likely offset weaker oil prices and send the Pound Canadian Dollar (GBP/CAD) exchange rate lower.
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