canadian-dollar-coins - CAD

GBP/CAD is declining on Tuesday after bulls overreacted yesterday. Currently, the pair is trading at 1.7779, down 1.18% as of 10:50 AM UTC. On Monday morning, the price surged over 2.00% to hit the highest level since April 2018 at 1.8043.

The Canadian dollar and the currencies of other oil-dependent economies tumbled after Saudi Arabia effectively declared a price war to Russia by slashing official oil selling prices and hinting to a boost in production starting from this April. Both Brent and WTI crude futures crashed over 30%, which was the biggest single-day decline since the Gulf War in 1991.

CAD Supported by Rebound in Oil Prices

Oil prices have bounced back on Tuesday on hopes that central banks and governments would initiate coordinated stimulus measures to fight the coronavirus epidemic.

However, some analysts argue that the rebound in oil prices is only short-lived, especially after Saudi Arabia officially announced that it would increase output to 12.3 million barrels per day in April, from the current level of 9.7 million barrels.

Also, this is the first time in history when the oversupply in oil markets comes along with a drop in demand. RBC analysts said in a note to clients:

Price wars and pandemics are nothing new to the commodity markets, but both occurring simultaneously is something we have yet to witness in our careers. Such action will test the market’s self-balancing mechanism absent the backstop of OPEC, a mechanism that has not been tested since the US shale boom was in its infancy.”

Besides reviving oil prices, the Loonie is also backed by recent housing market data. Yesterday, the Canadian Mortgage and Housing Corporation (CMHC) stated that housing starts in the country had dropped by 1.9% last month, while analysts expected a much bigger decline. The rate of housing starts dropped to 210,069 units from a revised figure of 214,031 units in January. Economists anticipated a fall to 205,000.

As for the sterling, it turned bearish as the panic from the coronavirus is increasing, with Italy being under lockdown until April. The UK confirmed the fifth death caused by the virus.

Meanwhile, the government led by PM Boris Johnson wants to continue the trade talks with the European bloc.