Canadian Dollar Holds Initiative Against the Pound Despite Oil Prices Easing
Those looking to buy pounds with their Canadian dollars should note that these are the best levels to do so since June 2015 thanks to a combination of weak sterling and improved oil prices.
Oil is once more leading sentiment towards the much-improved Canadian dollar with initial overnight losses leading the currency lower.
Yesterday saw OPEC Secretary-General El-Badri hint that a discussion over whether to cut production could come in four months at the earliest, and instead focus on the decision to freeze production at record highs.
"While this doesn’t seem a good strategy to raise prices, we have seen a gradual rise in the value of crude since the decision," says Josh Mahony at IG.
Monday saw the pound sterling decline by 2.5% from the level it closed at against the Canadian dollar on Friday night. The last time we saw such a dip was when the 2015 rally in GBP/CAD reversed back in August 2015.
The pair now sits at 1.9302 and the charts suggest further declines are likely from here, although some consolidation could be expected in the near-term.
No doubt the driver behind the move lower has been news that the EU referendum has been set alight by the joining of the 'out' camp by heavy-hitter Boris Johnson.
The London Mayor is seen as being potentially decisive to the outcome, in fact that is an understatement. Judging by the markets reaction he has pretty much won a Brexit!
"Even before the campaign started, Cameron has suffered his first defeat as Boris Johnson, the popular and influential mayor of London, declared yesterday that he will be campaigning for a Brexit. It was a major setback for Cameron who had hoped to enlist Johnson to those who want the UK to remain in the EU," says Lauri Hälikkä at SEB.
A look at the charts suggests the sterling is likely to remain pressured for the forseeable future.
Latest Pound / Canadian Dollar Exchange Rates
  | Live: 1.8608▲ + 0.04%12 Month Best:1.8915 |
*Your Bank's Retail Rate
| 1.7976 - 1.805 |
**Independent Specialist | 1.8348 - 1.8422 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
GBP/CAD Biased Lower, Support Still Some Way Off
There is still some way to go yet before the pound tests support against the Canadian dollar and selling pressure eases.
Of course it could happen anytime, particularly having observed how oversold the GBP now is. But, we would view rallies as being corrective in this market until some notable support is found.
We see the potential for selling pressure to ease at just above 1.90, the same congestion zone that held the pair in May-June 2015.
We cannot rule out temporary relief being offered by the 1.94 pivot zone, again the charts betray a liking by the trading community to pack orders around this level, as was the case in late June 2015.
Ultimately though our favoured area lies at the 1.90 level. That said, if the prospect of a British exit from the European Union comes closer to reality then we cannot rule out a dip to 1.82.
Deutsche Bank Not Confident on CAD's Outlook
Meanwhile Deutsche Bank argue in a special update on CAD that the recent period of strengthening was premised on a recovery in oil, however, they do not see oil recovering high enough to make Canada’s relatively expensive-to-extract oil profitable, and this eventually will pull CAD back down:
“While the CAD short covering should continue on the back of a deal to freeze oil production, oil prices should still stay far too low for Canada’s expensive oil sand leaving Canada’s current account well in deficit and the Bank of Canada ready to ease.”
We would say that the Deutsche Bank position is probably more applicable to the USD to CAD conversion as for now GBP/CAD is a two-way bet on one topic: Brexit.
