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The pound has climbed to its highest level against the Canadian dollar in a decade, with technical momentum confirming the exchange rate is pointed higher.
The pound-to-Canadian dollar exchange rate (GBP/CAD) has broken decisively above the long-standing 1.8842 resistance level, confirming a bullish breakout that leaves the psychologically important 1.9000 level firmly in focus.
The move is significant because former resistance often becomes new support.
If buyers continue to defend the breakout above 1.8842, the broader uptrend should remain intact, with the pair continuing its sequence of higher highs and higher lows.
Although the RSI is approaching overbought territory, momentum has yet to reach an extreme, suggesting there is still scope for further gains while the exchange rate remains above both 1.8842 and its 200-day moving average.
Canadian Dollar Pressured
Renewed Canadian dollar weakness is reinforced by a deteriorating domestic backdrop, says Karl Schamotta, Chief Market Strategist at Corpay.
"The Canadian dollar remains on the defensive after two surveys showed businesses and consumers remaining extremely cautious in early May amid ongoing trade uncertainties and the energy-price shock," he explains.
The latest Bank of Canada Business Outlook Survey showed confidence slipping after three consecutive quarters of improvement. Businesses reported weaker sales expectations and a sharp increase in input costs, highlighting the challenges facing the economy.
Consumers are also becoming more concerned about inflation.
"The companion consumer survey found a growing share of respondents expecting inflation to exceed 3% over the next 12 months, with medium-term expectations edging up and mentions of energy prices rising sharply," says Schamotta.
Although both surveys were conducted before the United States and Iran signed their memorandum of understanding in mid-June, meaning they may overstate current pessimism, Schamotta says the findings are still likely to influence policymakers.
Genuine Pound Strength
The GBP/CAD break above long-standing resistance is reflected in other key pairs, most notably GBP/EUR where a break above long-standing resistance at 1.16 saw a rapid ascent to 1.17 in Tuesday's trading session.
One factor supporting sterling is the UK’s relatively high bond yields. Higher yields increase the return available on UK assets, attracting international capital and creating demand for the pound.
Chasing superior bond yields - known as carry - is typically most popular when market volatility is low, and that's certainly the case in the current environment: measures of volatility are suppressed, and the stock market rally is broadening, creating the conditions for sterling to find support on the yields front.
