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The Pound to Canadian Dollar risks further decline over the coming five days as a broader U.S. Dollar rally aids Canadian Dollar outperformance.
Indeed, the two North American dollars are operating in tandem against the European currencies, meaning what's good for the U.S. Dollar vs. Pound Sterling is good for its Canadian cousin.
The U.S. Dollar leapt higher on Friday following the release of a consensus-busting jobs report that erased the prospect of a March rate cut and drastically lowered the odds of a cut coming in H1 altogether.
The Bank of Canada won't move before the Fed, meaning developments south of the border boosted the Canadian Dollar's rate support. In addition, it is U.S. economic exceptionalism that continues to underwrite this USD outperformance, which can only aid the closely linked Canadian economy.
In a monthly FX report, analysts at Royal Bank of Canada point to the importance of the U.S., saying the Canadian Dollar was an outperformer in January "on the back of its ‘mini-dollar’ status".
The Pound to Canadian Dollar exchange rate peaked at 1.72 in January but has since mean reverted back towards the middle of the range that has been in place since October 2023.
We now look for the decline to take GBP/CAD to the 200-day moving average at 1.6925, noting that this target can easily be met this week.
The decline could be arrested here, allowing GBP/CAD to consolidate ahead of any fresh impetus.
Above: GBP/CAD at daily intervals. Track the CAD with your own custom rate alerts. Set Up Here
The domestic highlight for the coming week is Canada's labour market release, due Friday at 13:30 GMT.
The market looks for a slight rise in the unemployment rate to 5.9% while 15K jobs are expected to have been added.
Any undershoot could dent CAD progress into the weekend, although we suspect any damage will be limited given the current supportive impulse coming from the U.S.