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Pound / Canadian Dollar Week Ahead Forecast: March 2020 Low Near 1.66 Eyed

  • GBP/CAD at risk of slippage toward 1.66
  • CAD supported by BoC policy, oil prices
  • GBP vulnerable along with European FX
  • Ukraine invasion stalls but fallout grows

Canadian Dollar

Image © Bank of Canada

The Pound to Canadian Dollar rate opened the new week on the back foot and would be at risk of sliding further to March 2020 lows near the round number of 1.66 if Sterling remains under pressure alongside other European currencies over the coming days.

Sterling was on course for its tenth consecutive decline against a resilient Canadian Dollar on Monday as oil prices leapt by almost double digit percentages and natural gas prices set all-time highs, delivering a boost to commodity-linked currencies along the way.

U.S. Secretary of State Antony Blinken’s Sunday suggestion that a Western embargo on Russian oil is in the pipeline may have provided a further uplift to prices, which had already risen by more than 20% in the week to Monday due to the increasingly destructive Russian assault on Ukraine.

“It seems very likely that geo-political risks will continue to overshadow financial markets for some time to come. However, what has emerged from North America this week suggests that policy makers here are not being diverted from their focus on inflation and will continue to push on with a steady tightening of monetary policy, despite the highly volatile international backdrop,” says Shaun Osborne, chief FX strategist at Scotiabank.

Strong oil prices and last week’s decision by the Bank of Canada (BoC) to begin lifting its interest rate from a crisis-induced low of 0.25% may be supporting the Canadian Dollar, although the bulk of recent weakness in GBP/CAD has been driven by Sterling and European currencies.


GBP to CAD daily

Above: Pound to Canadian Dollar rate shown at daily intervals.

  • Reference rates at publication:
    GBP to CAD spot: 1.6742
  • High street bank rates (indicative): 1.6140 - 1.6256
  • Payment specialist rates (indicative: 1.6573 - 1.6640
  • Find out about specialist rates and service, here
  • Set up an exchange rate alert, here

The Pound, Euro and mainland European counterparts have borne the brunt of market concerns about the possible economic impacts of the war in Europe, which appeared set to remain a weight on risky currencies and other assets across the region on Monday.

“With commodity markets now taking another leg higher on speculation over embargoes on Russian exports, fears of stagflation in Europe will continue to build. Expect European FX and most emerging market currencies to remain under pressure,” says Chris Turner, global head of markets and regional head of research for UK & CEE at ING.

With the main Sterling exchange rate GBP/USD at risk of sliding to 1.3120 and its lowest since September 2020 this week, GBP/CAD could fall beneath 1.67 and toward the round number of 1.66 even if the all-important and highly influential USD/CAR rate continues to track sideways.

“We remain constructive on the medium-term CAD outlook and note again that seasonal trends typically turn more positive for the CAD after in late March/early April. The question is whether this is a “typical” year or not. More choppy range trading is likely but we think the CAD is unlikely to weaken significantly. USDCAD gains (to 1.28+) remain a sell, we believe,” Scotiabank’s Osborne and colleagues said on Friday.

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GBP/CAD would risk steeper losses this week if the Loonie begins to follow other commodity currencies higher this week, although it’s shown little inclination to do that so far and a part of the reason may be the transportation bottlenecks that have long limited growth of Canada’s oil sector.

“We note the USD has been exerting a larger influence on USD/CAD compared to oil prices and expectations for tightening by the Bank of Canada. As a result, USD/CAD will likely struggle to sustain a move below the lower end of its recent trading range near 1.2600. CAD will likely ignore a rebound in the Canadian labour market in February this Friday,” says Carol Kong, an economist and currency strategist at Commonwealth Bank of Australia.

The economic calendar for the week ahead offers little by way of major appointments for both Sterling and the Loonie until Friday when the UK’s January GDP report is out just hours ahead of February’s labour market data from Canada.

Financial markets are likely to remain preoccupied with developments relating to Ukraine, however, and these remain a headwind for Sterling.


GBP to CAD weekly

Above: Pound to Canadian Dollar rate shown at weekly intervals.

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Ukraine’s President Volodymyr Zelensky has warned that Monday could see heavy shelling and airstrikes on urban environments, which would risk reproducing the same kinds of headlines that upset financial markets last week, although in the background behind all of this there is an emerging prospect of triumph for Ukraine’s military and civilian population.

“The Kremlin does not yet want to accept and acknowledge its fiasco. But this time is near. Dissatisfaction and demoralization among the occupying forces is growing,” Defence Minister Alexey Reznikov said in a Sunday statement.

“The most capable units of the enemy were defeated: the enemy was stopped in Kyiv and Kharkiv. In Nikolaev it is rejected. Odessa is our strategic reserve. Replenishment of the enemy's forces will become more and more difficult, the quality of replenishment will be even worse,” he also said.

While the conflict in Ukraine remains a long way from over, the invading Russian army has tried and failed repeatedly to capture and hold strategically important sites like Hostomel town and its airport near Kyiv - which were among the first to be seized in the initial invasion on February 24.

Meanwhile, the latest executive orders and laws emerging from the Kremlin potentially illustrate quiet concern in Moscow about the flagging campaign.

“Enemy military resources in Ukraine are running out, there will be a logistical collapse. Realizing this, the tendency to capture the enemy is growing. And not single soldiers, but whole platoons,” Defence Minister Reznikov had said on Friday.