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The British pound looks set to stay on the back foot against the Canadian dollar in the coming week, with losses likely to extend if oil climbs further on Hormuz tensions.
The Pound to Canadian Dollar exchange rate is trading beneath a falling trendline that has capped every rally since July, and with oil prices firming at the start of the week we look for the pound to drift lower in the days ahead.
Canada's own economy offers the pound some cover, with small business confidence sliding in September and Tuesday's GDP figures expected to show output stalled in July, so the Loonie's advantage rests on oil and a sharp fall in the pair looks unlikely.
The 21-day moving average - the blue line in the below chart - has slipped beneath the 100-day, a sign of fading momentum inside a range that has held since early September:
GBP/CAD daily chart. Image © Pound Sterling Live, chart created with TradingView.
GBP/CAD opens the week at 1.8739, a touch above graphical horizontal support at 1.8711, a line the market has traded back and forth through all month and which looks to be working as a pivot.
The 100-day - the red line - rose steadily from June through August and has flattened this month. The 21-day has fallen since late August and crossed beneath it last week, which tells us the summer uptrend has lost its momentum.
Rallies have repeatedly failed at graphical horizontal resistance at 1.8810, the floor of July and August that turned into resistance once it broke. The falling trendline drawn from the July peak - the light blue line - is converging on the same area, and the two form a single band of resistance for the week ahead.
The September low near 1.8610 marks the base of the range, and a daily close beneath it would open the way to a deeper decline.
We look for a drift towards the September low in the days ahead, with rallies likely to fade beneath 1.8810. A daily close above that band would break the pattern of lower highs in place since July, and until then our Pound to Canadian Dollar forecast tilts lower.
A week ago we said September's recovery looked fragile and that the pound would struggle to establish itself above the converging averages. It did struggle: the pair ended the week little changed, and the 21-day's slide beneath the 100-day confirms the recovery has run out of energy.
Firm Oil Supports the Loonie
Crude climbed on Monday after the U.S. president turned down Tehran's most recent offer to reopen Hormuz in return for lifting the U.S. blockade of Iranian ports.
How does oil reach the Canadian dollar? Canada is a major crude exporter, so higher prices lift its export earnings and draw demand for its currency. Firm crude has tended to leave the Loonie on the front foot against the pound as a result.
Daniella Arcadipane, Senior Currency Specialist at Indigo
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Talk to a specialistCommonwealth Bank's currency strategists note in their weekly report of 28 September that media reports have President Trump considering a major military escalation after the U.S. midterm elections on 3 November, while Iran has shown it can retaliate and keep Hormuz closed. That combination keeps energy prices high and argues the oil support for the Loonie has staying power.
Canada's Economy Loses Momentum
Tuesday's July GDP report at 13:30 London time is the week's key Canadian release. Statistics Canada's advance estimate showed output essentially unchanged, and National Bank of Canada also expects stagnation, with gains in real estate and professional services offset by weaker retail, wholesale and manufacturing.
A reading above expectations would support the Canadian dollar and push GBP/CAD lower, while a contraction would weigh on the Loonie and give the pound some relief.
Canadian retail sales fell 0.7% in July and the Canadian Federation of Independent Business's 12-month confidence index dropped from 57.7 to 47.9 in September.
Sterling meanwhile has the 28 October Budget to navigate, and that fiscal risk curbs its ability to exploit Canadian weakness. A stalled Canadian economy gives the pound some protection, but while oil stays firm on Hormuz headlines the Loonie keeps the upper hand, and on balance that fits our Pound to Canadian Dollar forecast of a drift towards the September low.
Daniella Arcadipane, Senior Currency Specialist at Indigo
Moving a life-changing sum abroad? You won’t be doing it alone.
One specialist explains every step in plain English and stays with it until the money lands. FCA authorised, FRN 594433.
Talk to a specialist
