GBP/CAD surged to the highest level since April 2018 after oil prices saw their biggest single-day declines in almost 30 years. Currently, the pair sterling–Canadian dollar is trading at 1.7911, up 2.00% as of 11:00 AM UTC.
CAD Tumbles Amid Oil Market Shock
Canada’s oil-dependent economy is experiencing a shock after Saudi Arabia announced on Saturday that it was lowering its official oil selling prices. Besides this, the world’s biggest oil producer would boost crude output to above 10 million barrels per day starting from April. The move hit oil prices, which plunged 30% on Monday morning, showing the biggest daily drop since the Gulf War in 1991.
Saudi Arabia’s decision is a declaration of price war and means the OPEC+ alliance, which has been around for three years, is over. The move came several days after Russia refused to abide by the oil cartel’s call to deepen production cuts in an effort to react to the demand drop amid the coronavirus outbreak.
This is probably the first time in history when there will be an oversupply of oil amid declining demand. Goldman Sachs and Citigroup analysts expect crude futures to further decline to around $20 from the current level of about $32.
The Loonie was affected by the oil market shock and continued to decline against a weakening pound. Last week, the Bank of Canada cut the interest rate for the first time since 2016.
The Canadian economy will continue to suffer also because of the coronavirus epidemic, which is hammering the country’s tourism sector. Tourism Minister Melanie Joly told the media that revenue from tourists would significantly decline, especially because there are fewer Chinese tourists.
UK Focusing On its Own Problems
Elsewhere, the British economy is struggling as well. Stock markets in London saw the largest intraday fall since the financial crisis in 2008. UK Prime Minister Boris Johnson is planning an emergency meeting to discuss the coronavirus outbreak.
Meanwhile, the British government is still trying to figure out how to get the best deal with the European bloc while maintaining its full independence. European Commission President Ursula von der Leyen said earlier today that Britain has to think about what trade-offs it expects to accept during negotiations with the EU. While there are serious tensions between the two sides, an agreement can still be reached by the end of 2020, she said.
“It will be important that the United Kingdom makes up its mind. The closer they want to have the access to the single market, the more of course they have to play by the rules that are the rules of the single market,” the European official said.
