Pound-Canadian Dollar Rate Hits 2-month Highs as Oil Crumbles and USD Roars

- GBP/CAD rallies to 2-month highs, eyes range ceiling
- As CAD/USD blindsided by oil slump, broad USD rally
- After U.S. & European PMI surveys worry markets

Above: Oil pump jack, Calgary, Alberta, Canada. Image © Adobe Stock.

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The Pound-to-Canadian Dollar rate hit a metaphorical roof ahead of the mid-week session with its strongest one-day gain since the early morning moments of May, creating scope for a possible range-break higher, as oil prices crumbled and the U.S. Dollar roared back to life.

Sterling itself was underwater and sinking relative to a U.S. Dollar that was riding roughshod over other currencies like a galloping cyclone on Tuesday, although the Pound-to-Canadian Dollar rate still rose by three quarters of a percent in testament to the scale of losses seen by the Loonie.

This was as Brent and West Texas Intermediate oil benchmarks fell -2.4% and -2.7% respectively in what is bad news for the Canadian Dollar, given how earlier double-digit percentage gains had previously been widely cited as aiding it to the top of the major currency performance table for 2021.

Canada’s Dollar was still the best performing major currency ahead of the mid-week session, albeit less so, while oil prices were already falling and seemingly due to a quarrel between the Organization of Petroleum Exporting Countries (OPEC).

"It looks like the market is more worried about a potential crisis at the cartel than it is liking the lack of fresh supply coming on in H2. WTI tests the 200-hour SMA at $74 where it's finding a little support. A break could see $72," says Neil Wilson, chief market analyst at Markets.com.

"Traders seem concerned that the speculative positioning could be unwound in the coming days if the OPEC+ deal was to start to unravel, ultimately leading to more crude and a less stable oil market," Wilson adds.

Above: Pound-to-Canadian Dollar rate shown at hourly intervals with WTI oil price, CAD/USD and GBP/USD.

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What started as a trickle of oil and Canadian Dollar losses turned to a flood late on Tuesday following the latest Institute for Supply Management (ISM) services PMI survey from across the border in the U.S., which was an evident and very large disappointment for economists, investors and traders.

The ISM Services PMI index had been tipped, by various measures of consensus expectations, to ease lower from a record level of 64 to only 63.4 although the barometer actually fell by more than six percent to 60.1 upon release.

It measures activity in the most important sector of the U.S. economy and was caught red-handed the Pound-to-Canadian Dollar rate leapt almost immediately after from around 1.7120 to trade as high as 1.7248 by the time of writing.

"Today’s collapse in the ISM services PMI (60.1 from 64.0) does surprisingly confirm the weakening employment element signalled by the manufacturing survey last week. Despite Friday’s jobs report bringing a better-than-expected payrolls figure, both services and manufacturing ISM surveys have shown contraction in their employment segments for June," says Joshua Mahoney, an analyst at IG Group.

"Meanwhile, faith in the German economic recovery have clearly taken a step back with the ZEW economic sentiment survey falling to a six-month low," Mahoney adds.

This placed the Pound-to-Canadian Dollar rate on course for its largest intraday gain since May 10, a left it close to the top of a multi-month trading range which has several times proven to be a bridge too far for the Sterling exchange rate to cross.

Above: Pound-to-Canadian Dollar rate shown at daily intervals with CAD/USD and GBP/USD.

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