British Pound Capped Against the Canadian Dollar
- Written by: Gary Howes
The pound sterling is struggling to attain its best exchange rate of 2015 against the Canadian dollar.
The British pound rallied in confident fashion to push its best exchange rate of 2.09 in August – however these levels have proven to be fleeting.
As we can see from the following graphic, the GBP/CAD is presently dictated by the range between 2.06 and 2.02.
Any moves either side of the range tend to be reversed in quick fashion ensuring any directional moves to either the top or bottom are eliminated.
2.06 is now resistance and as shown by recent price action there is little to suggest enough upside momentum will be re-established to breach this level and open the door to the 2015 highs around 2.10.
Risks for the Canadian Dollar Ahead, USDCAD to Trade Around 1.32
While the Canadian currency has managed to hold up relatively well against the pound, the outlook ultimately favours sterling.
In addition to risk appetite (watch China and oil prices) and Bank of England expectations, CAD has another important element in its outlook.
"That element is the federal election on October 19th. The election is now inside the one-month hedging window, but we think there is still a substantial amount of event risk hedging that remains to be done," says a currency forecast note from BMO Capital.
BMO expect election event risk to keep USDCAD around 1.32 for the next month, even though the shift in the interest rate differential argues for USDCAD to be around 1.30.
Any inability to defend itself against the USD will likely be felt in the GBPCAD pair which will likely follow the US unit higher.
"In addition to event risk, the election may discourage investors, because it is likely to lead to a minority government that may not have the political ability to respond to shocks," say BMO. The investment bank are still forecasting USDCAD at 1.35 for year-end due to Fed tightening.
Latest Pound / Canadian Dollar Exchange Rates
  | Live: 1.8602▲ 0%12 Month Best:1.8915 |
*Your Bank's Retail Rate
| 1.7969 - 1.8044 |
**Independent Specialist | 1.8341 - 1.8416 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Oil Prices Could Also Push CAD Lower
While technical indicators suggest the Canadian dollar is doing enough to restrain the pound sterling, the fundamental backdrop confirm any breakout in the stalemate are likely to be towards the upside.
One reason for believing the outlook does not bode particularly well for the CAD is the ever-present headache that are global oil prices.
“Oil prices remain a primary risk for CAD, even more so following Thursday’s price action in which WTI failed to respond to Thursday’s Fed. Oil market fundamentals are weak, with high inventories and a relatively slow rationalization of global supply,” confirms Eric Theoret at Scotiabank in Ontario, Canada.
Theoret warns that oil price considerations could easily resume their dominance over CAD, potentially overwhelming the near-term support afforded by relative monetary policy shifts.
Scotiabank look for USDCAD to remain heavy near-term; loss of support intraday at 1.3015 may see losses extend towards 1.28/1.29 fairly quickly where we expect a firmer base to develop.
The GBP continues to find support on the back of relatively strong economic data.
Recent gains in GBP have been driven by a shift in relative policy considerations with a reinforcement of the BoE’s bias to normalization set against a bias at the Bank of Canada.
Scotiabank continue to look for a Q1 rate hike at the BoE.
