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CAD and NZD Exchange Rates Jump on Oil Surge and RBNZ Governor, UK Inflation Jumps to 3.1%

December 12, 2017 9:59 am | Modified September 4, 2018 7:19 am
CAD, GBP, NZD | BY Ashleigh Fox

The Canadian Dollar exchange rate strengthened slightly against the US Dollar (CAD/USD) and Pound Sterling (CAD/GBP) on Tuesday after oil prices broke through US$65 – the highest level since mid-2015.

The jump in black gold came after one of Britain’s key pipelines, the Forties pipeline, was discovered to have a crack. The crack expanded and now the 5-6 inch hairline imperfection is due to be repaired, which will require shutting down the operation, likely for a few weeks. The pipe transports oil from the North Sea to Scotland. Ineos purchased the pipeline at the end of October from BP and will be a disappointing development for them.

Additionally, this may play havoc with those platforms that use the pipeline, with production potentially being paused for a few weeks. As a result of the production cut and interruption, Brent crude oil spiked to levels of US$65.70 for the first time since 2015. The UK’s energy sector could feel hefty effects from the interruption, and it’s possible the cost of heating and fuel in the UK could leap higher – a factor that could push inflation up further.

The UK government has confidently said that the oil disruption won’t impact supply, stating:

‘There is no security of supply issue for fuel or gas supplies as a result of the repairs needed to the Forties pipeline. The government will continue to liaise with industry operators to monitor the situation to ensure repairs are undertaken as quickly as possible.’

However, not everyone is convinced, and this situation could pose another problem for Theresa May as she battles through Brexit negotiations and now faces a cold spell with less fuel.

UK inflation figures this morning showed consumer prices had risen even higher in November, climbing by 0.3%, despite forecasts for a smaller 0.2% gain. The annual figure now sits at 3.1% – the highest level in almost six years. Now the Bank of England (BoE) Governor Mark Carney will need to write a letter to Phillip Hammond, Chancellor to the Exchequer to explain why consumer prices are so far away from their 2.0% target.

Meanwhile, in New Zealand, the appointment of a new Reserve Bank of New Zealand (RBNZ) Governor, pension fund boss Adrian Orr, has led to a rise in the NZD exchange rate. It had been feared the new Labour government could give the central bank a dual mandate to maximise its employment and give extra inflation responsibilities. However, the appointment of Orr has quelled the anxieties.

Former RBNZ official Michael Reddell commented: ‘Adrian is pretty well known in markets. It’s not someone who’s totally flaky leftwing, because no one’s had a clear sense of who was in the running and it could have been someone out of left field who is more strongly perceived as highly dovish.’

The New Zealand Dollar exchange rate rose to a two-week high on the news.

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