Canadian Dollar falls with oil price

GBP EUR Trades Above 1.18 After Weak ZEW Data

The Canadian Dollar has held relatively steady until today following its recent gains against most major currencies. Data was released yesterday which showed global national stockpiles of oil had increased quite dramatically. This caused another surprise drop in oil prices when most market commentators and even companies had banked on prices having bottomed-out already.

Stockpiles are how markets gauge current production and future demand. A massive stockpile suggests overproduction, and suggests demand will likely fall in the future. Normally when oil prices are incredibly low, oil producing countries dial back on production as they are wasting finite reserves of oil by selling them at lower prices.

But OPEC countries like Saudi Arabia are still producing massive amounts of oil. They can produce oil more cheaply than most countries due to cheap labour, so their strategy is to gain market share so that when prices rise they can make an absolute fortune. This also has the added benefit of stymieing investment in fracking – a more expensive form of sourcing oil and new competition for OPEC.

As a commodity based currency the Canadian Dollar has lost value as a result, as economic projections have been revised once more. This is a shame for Canadian Dollar sellers who having been enjoying a few weeks of Canadian Dollar strength, but I would expect more of the same going forward. These kind of oil shocks can only happen once every few months, when the data is released on stockpiles. Inflation figures for the Canadian economy will be released tomorrow, which has been a strong performer in recent months – much healthier than the record lows in the UK and US, so expect GBP/CAD and USD/CAD to fall from from Canadian Dollar strength.

These oil price shifts are another gift to CAD buyers who have seen rates move in their favour more than 14% over the past 8 months. Think of these rates currently as an elastic band, the further the stretch the more dramatic the snap-back. When UK inflation came in poorly last month, GBP/CAD went from 2.05 to 2.01 in a matter of minutes. We have continually been beaten back from the 2.05 boundary on the rates, and with recent Canadian Dollar strength I would expect more of the same.

Email me on [email protected] for advice on any upcoming Canadian Dollar transfers you may have. Rates can be pegged to prevent them from falling against your favour from market activity. Tom Holian – 01494 787 478