- GBP/CAD breaks higher, eyeing test of 1.7160
- With USD/CAD stalled by resistance on charts
- As global markets throw towel over new virus
- CA GDP, jobs ahead with UK calendar sparse
Image © Bank of Canada
The Pound to Canadian Dollar exchange rate rallied to new November highs early in the new week, overcoming a notable technical resistance barrier on the charts in the process while creating scope for a possible further advance toward 1.7160 over the coming days.
Pound Sterling rose almost a full percent against the Canadian Dollar on Tuesday as stock and commodity markets tumbled across the globe, placing the Loonie and other currencies under pressure as investors appeared to walk away from risk assets en masse.
This was after the chief executive of Moderna expressed scepticism about whether existing vaccines would provide protection against the latest mutated strain of the coronavirus first identified last week and about which little is known currently.
The comments catalysed an unravelling of Monday’s recovery rally for risk assets and although they weighed on the Canadian Dollar they didn’t keep Sterling from edging higher against the U.S. Dollar on Tuesday, delivering an additional tailwind to GBP/CAD in the process.
“Despite possibly having a more balanced positioning now, a hit to sentiment, oil prices and the potential pricing out of BoC rate expectations due to the Omicron variant spread, still signal sizeable downside risks for CAD,” says Francesco Pesole, a strategist at ING.
Above: Pound-Canadian Dollar rate at daily intervals with Fibonacci retracements of September decline indicating areas of technical resistance.
- Reference rates at publication:
GBP to CAD spot: 1.7067
- High street bank rates (indicative): 1.6470 - 1.6589
- Payment specialist rates (indicative: 1.6913 - 1.6982
- Find out about specialist rates, here
- Set up an exchange rate alert, here
- Book your ideal rate, here
The Pound-Canadian Dollar rally has taken it above the 38.2% Fibonacci retracement of September’s trend lower that had barred its path higher last week and cleared a path for Sterling to attempt a run at 50% retracement of its fourth quarter correction.
“AUD, NZD and CAD are underperforming most major currencies. The expansion in China manufacturing activity failed to offset the downside risk to the global growth outlook from the omicron coronavirus variant,” says Elias Haddad, a senior FX strategist at Commonwealth Bank of Australia.
“China’s manufacturing PMI rose more than expected in November to 50.1 (consensus: 49.7). But until concerns over Omicron abate, AUD, NZD and CAD can make fresh cyclical lows versus USD,” Haddad wrote in a Tuesday research briefing.
Half of Tuesday’s advance was the result of gains by the main Sterling exchange rate GBP/USD, which has proven impervious to unravelling global markets thus far, although a USD/CAD rally and test of a major resistance level on the charts has also contributed significantly to the GBP/CAD rally.
“Friday’s price action has breathed additional bullish momentum in the currency toward an eventual breach of 1.28,” warned Shaun Osborne, chief FX strategist at Scotiabank, referring to USD/CAD in a Monday note to clients.
USD/CAD is one of two primary influences on GBP/CAD and should it rise above 1.28 this week it would provide further fuel for the Pound-to-Canadian Dollar rally, although such an outcome would be unlikely to materialise without continued global market risk aversion of the kind seen on Tuesday.
“News on the variant will set the tone for global sentiment in the coming days and will drive all moves in CAD, likely out shadowing any post-GDP reaction,” says ING’s Pesole.
With international factors aside the highlight of the week ahead for the Canadian Dollar is September and third quarter GDP data due out on Tuesday and October’s employment figures, which are set for release on Friday, which will reveal how close the Canadian economy was toward living up to Bank of Canada forecasts before the new coronavirus variant emerged last week.
Above: USD/CAD at daily intervals with Fibonacci retracements of August decline indicating likely areas of technical resistance.