Oil volatility weakens the Canadian Dollar

The strength of the Canadian Economy and thus CAD rates is heavily dependent on the price of oil, with crude oil representing 19.4% of total exports. Following Donald Trump’s surprise victory, the price of oil dropped by 4% in the immediate aftermath of the US presidential election. The sell-off was part of a market wide knee-jerk reaction where investors fled risky assets such as crude oil to safer options such as gold and silver.

With the price of oil tumbling the exchange rates also suffered and the Canadian Dollar’s value against GBP, EUR, and USD fell by 2.5%, 4.5% and 2% respectively in the space of just 4 hours.

The Trump impact

With Trump’s open stance on drilling and Keystone-XL, a 1,200-mile proposed Canada-US oil pipeline previously blocked by Obama possibly back on the agenda. It may imply higher production of oil in the US, putting further pressure on prices which in turn could allow the Pound to rally further against the Canadian Dollar as we saw yesterday, up from 1.66 to 1.69.

Anyone with a CAD requirement will be anticipating the outcome of OPEC’s meeting in Vienna on November 30th to discuss and complete agreements reached in late September to curb oil production. However, with Trump being voted in has this thrown a spanner in the works?

Economic data releases

The Governor of the Bank of Canada Stephen Poloz will make a speech this afternoon at 14:50pm reaffirming Canada’s five-year inflation-targeting agreement aiming to control inflation between 1%-3% in order to provide some certainty to both companies and consumers in this volatile period.

On Friday 18th November at 13:30pm the consumer price index report will be published, giving a good indication of what we may see at the BOC’s (Bank of Canada) next interest rate meeting on the 7th December and with interest rates currently at 0.5% a strong CPI figure would strongly back a possible rate hike.

The Canadian Dollar could experience further weakness if oil prices continue to dive. Clients looking to sell off Canadian Dollars to buy Sterling could benefit from speaking with our friendly team of brokers on 01494 725 353.

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