Pound Teetering on the Edge Against Canadian Dollar
- Written by: Gary Howes
The relentless decline in the GBP to CAD exchange rate slowed in March but April could see the move lower accelerate.
At best sterling played a decent defensive game against the Canadian dollar in March with the support level at 1.86 proving handy.
The pound to Canadian dollar exchange rate has however fallen to fresh lows of 1.8491 on the first day of April.
From a fundamental perspective the outlook remains skewed in favour of the Canadian unit in the wake of this week's news that Canadian economic growth numbers blew apart analyst expectations by coming in higher than expected.
On the other hand, the British pound is struggling to find buyers with question marks over the UK economy's future being posed by the looming EU referendum.
“GBPCAD retains a soft undertone. The cross is still in consolidation mode and price signals remain equivocal on the directional risks from here,” says analyst Shaun Osborne at Scotiabank.
The declines in March have not been as frantic as those witnessed in January and February but the drift lower remains intact nevertheless.
However it must be respected that GBP has been finding consistent support around 1.85 in the past two weeks.
It is interesting to note that a similar pattern of stubbornness by the pound is being shown against the New Zealand dollar, a fellow commodity currency.
However, “trend strength signals are bearishly aligned across a range of timeframes again and that tips the balance of risks towards a resumption of the broader bear trend,” says Osborne.
The GBP has reached Scotiabank’s long-held bear target of 1.8515 but analysts remain wary of a downside over-shoot towards 1.78/1.80.
Latest Pound / Canadian Dollar Exchange Rates
  | Live: 1.8615▲ + 0.07%12 Month Best:1.8915 |
*Your Bank's Retail Rate
| 1.7982 - 1.8056 |
**Independent Specialist | 1.8354 - 1.8429 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Wild Swings
The sudden drop in GBP/CAD, followed by a recovery, was echoed in the headline USD/CAD exchange rate.
"Wild swings were seen in USD/CAD today, which broke below 1.2900 and hit a 5-month low before recovering quickly and aggressively to end the day near 1.3000. The intraday reversal in the currency pair caught everyone by surprise because there was no news or catalyst," says Kathy Lien at BK Asset Management.
Canada's economy grew 2 times faster than anticipated in the month of January and this helped lift year over year GDP growth to 1.5% from 0.6%.
Oil prices also edged higher while the U.S.-Canadian 2 year yield spread moved in favor of losses in USD/CAD.
Policymakers don't appear alarmed with the rise in the loonie with Bank of Canada Deputy Governor Patteron even citing loonie weakness as a source of strength for exports this morning.
"As such, we believe that USD/CAD will make another run for its 5 month lows," says Lien, giving us a clue of where GBP/CAD could follow.
