Canadian Dollar Forecast to Decline Against the Pound in 2016
The pound to Canadian dollar conversion rate is a leading trade for 2016 at TD Securities.
Strategists at the Canadian bank are bullish on GBP over coming months and expect a sluggish commodities sector to foster the necessary conditions for GBPCAD upside.
The call comes as the Canadian dollar declines against GBP thanks to soft oil price dynamics.
GBP has risen from below the key 2.0 CAD support line to pursue the 100 day moving average, presently located 2.0265.
A break above this resistance point will be required for sterling to advance out of the sideways trending range it has found itself in against CAD since October.
Canadian Dollar Forecasts 2016: Losses Against the Pound and Dollar
While the GBP/CAD offers little by way of excitement at the present time, if analysts at Toronto’s TD Securities are to be believed, gains lie ahead.
TD Securities have targeted the GBP to CAD conversion as being a prime suspect for further advances in 2016.
The Canadian dollar falls under the broader commodity dollar complex which, as a broad grouping, is expected to suffer against the UK currency.
Strategists have released their top trades list for 2016 and the exchange rate is forecast to move higher towards 2.15.
A stop-loss will be placed at 1.96 to protect against unexpected Canadian dollar strength.
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.
Without any obvious catalyst from Canada, Barclays advise they expect USDCAD to keep responding to global developments, in particular oil prices.
The monetary policy divergence with the US and the general trend of the dollar will also add upward pressure on the exchange rate.
“We forecast USDCAD to reach 1.36 by year-end and 1.40 by mid-2016,” say Barclays.
Oil Prices Key Mechanism for CAD Declines
Following a year of weakness and the risk of an additional correction in the latter part of the year, the commodity complex including crude oil, base metals and precious metals will likely continue to be under considerable selling pressure through early-2016.
The Canadian dollar remains tied to the fortunes of oil prices as this commodity remains a pivotal source of foreign exchange flows.
According to TD Securities, the energy complex still looks at risk of dropping even lower due to OPEC's aggressive over-quota sales, a steadfast US production profile, and pending new supplies from Iran in the aftermath of its nuclear weapons deal with the P5+1 group.
Those hoping that the new Liberal government’s fiscal spending plans will boost the economy could be in for disappointment.
“Our growth outlook for 2016 remains relatively unchanged, as the fiscal spending would show up only by 2017 and would be moderate,” say Barclays in the latest edition of their Global FX Quarterly.
Analysts at the British bank think the announced fiscal plan could add up to 0.25% to GDP growth in the first year and 0.1% in the second, or a cumulative effect of 0.35% on the output gap.
2016 Will be Kinder on CAD Argue CIBC
Coming in with a more positive viewpoint on the Canadian dollar's prospects are CIBC who have told clients they see a turn in fortunes for the currency in mid-2016.
While a powerful comeback is by no means predicted, what we are hearing is that the CAD could do enough to keep the likes of sterling and the US dollar at bay ahead of any potential rebound.
"The tune will change, however, as we progress through 2016. The Fed will be tightening policy at an extremely gradual pace just as the Canadian economy begins reaping the full rewards of the weaker loonie," say CIBC.
If we put these views together we get the sense that while the outlook does not favour Candian dollar strength, an all-out rout is unlikely.
Indeed, most analysts concur that the currency will start to appreciate once more in the middle of the year.
