Pound-to-Canadian Dollar Week Ahead Forecast: Momentum Ticks Higher
- Written by: Gary Howes
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The pound can rise against the Canadian dollar this week, however gains should be relatively shallow as relative monetary policy stances favour Canada's currency.
This means those with Canadian dollar purchase requirements should be prepared to buy on any near-term upticks.
The pound to Canadian dollar (GBP/CAD) rises to 1.8523 on Monday, which keeps it well within the range it has occupied since November.
GBP/CAD technical studies advocate for further gains in the near-term, with a move above the 200-day exponential moving average (EMA) at 1.8448 catching our eye.
A confirmed break above this technical indicator opens the door to a resumption of the multi-year rally and an eventual move to 1.88 later in Q1.
Yet, we're not convinced that's going to happen and think strength should be relatively short-lived, limiting upside to December 04's high at 1.8667.
The main reason for expecting limited strength at this juncture rests with the view that the Bank of Canada won't cut interest rates any further, while the Bank of England will.
For GBP/CAD to trend higher, we would need to see the opposite.
With this in mind, the focus this week is the release of Canada's December labour force survey, due Friday.
A -2.5k reading is expected, suggesting a cooling in conditions following the unexpectedly strong +53.6k in November, +66.6k in October and 60.4k in September.
These strong outturns all but confirmed the Bank of Canada is done with cutting interest rates and that the next move could be a hike.
Another above-consensus jobs report would bolster rate hike bets, helping the CAD along the way, making GBP/CAD upside difficult to realise.
Also, GBP's current rally still appears to be a relief bounce following soft trading in the period to the November 26 budget in the UK.
Some analysts say sterling appears to be enjoying a short-covering rally - i.e. it's technical in nature. If so, then GBP will run out of steam before long.
Given this, GBP/CAD gains should be viewed as short-lived in nature.
