Oil prices continue to fall which is having an impact on CADs value. Unless oil producing countries can agree to limit production this trend could be set to continue.
Sterling continues to climb against the commodity currencies post-Brexit. With the likelihood of a FED interest rate raise before the new year, this trend could be set to continue.
Whilst commodity currencies tend to have more favourable interest rates, their risk potentials make them less attractive for long term investment. The US Dollar on the other hand, which has been subject to low interest rates since the recession in 2007/8, continues to be the safety net currency for long term investment.
If the FED decide to raise interest rates this year, appetite for the US Dollar will increase as the gap between interest rates from riskier currencies shortens.
There is however, another concern for CAD that makes me believe further movements will favour Sterling.
In my last market report, I wrote that oil prices could be set to fall to the lower end of $40 a barrel, crude oil at the time of writing is now $43.50.
What is causing these changes? Libya have ramped up its production of oil following political unrest. Iran equally, are looking to return to their pre-sanction levels and Russia, which have previously promised to work with OPEC in stabilising the price of oil by reducing output, are reluctant to do so unless others play ball.
And to add to the problem, at least 58 US oil companies have gone bankrupt in 2016, with oil reserves in the US reflecting these changes.
The Canadian economy is heavily reliant on the price of oil and this could explain why GBPCAD exchange rates are moving closer to their pre-Brexit levels. Whilst still short of these levels, Canadian Dollar sellers should take advantage of the highs against Sterling as soon as possible. I am expecting further movements in Sterling’s favour.
With the above in mind, call our trading floor on 01494 725 353 if you have Canadian Dollars to sell.
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