Pound / Canadian Dollar Rate Forecast to Test 1.70 Over Coming Days

The GBP to CAD exchange rate looks to be poised to extend its trend lower and our analysis suggests the currency pair should be looking at an initial 1.70 target.

The Pound to Canadian dollar exchange rate starts the new week off relatively stable - a rare occurance considering the extreme volatility we have witnessed of late. 

GBP/CAD is seen trading at 1.7116, but despite the more settled conditions the pair is nevertheless seen below the previous Monday’s extreme Brexit-spike lows at 1.7130.

Firming risk sentiment across global markets and higher energy prices have ensured the CAD remains in control.

"The Canadian Dollar benefitted from a levelling off in energy and commodity markets and these combined factors have driven the GBPCAD exchange rate from the C$1.93 high we saw ahead of the Brexit vote to the C$1.71 level I can see at the time of writing," says David Johnson at Halo Financial.

A break below them would provide bears with more confirmation the exchange rate was going to go lower, with an initial target at 1.7000 where round-number support would be likely to kick in and slow the decline.

No really tough levels appear on the horizon, however, until you get to 1.6571 and the S1 monthly pivot, a level traders use to trade counter to the dominant trend, and which prices often respect and bounce from.

A decisive break, therefore below 1.7000 – say confirmed by a move below 1.693 - would probably indicate a continuation down to a longer-term target at 1.66, just above S1.

Halo Financial's Johnson says he believesthe pair ought to bounce from this low before resuming its downward path but every day seems to bring a new market-moving piece of news at the moment.

"So forecasts are great as long as no one of any importance says anything at all and we all know that won't be the case," says Johnson.

The outlook for Canada is to some extend dependent on its neighbour the US, and given current data appears to be improving in the US that bodes well for CAD, overall.

This should make the loonie more resilient than is commodity currency brethren (AUD, NZD) to more global risk aversion.

The other main factor impacting on the loonie is the price of oil given the country’s status as a major oil producer.

The USD/CAD pair has shown a 78% correlation with the price of oil averaged over the last 10 years.

Crude continues to go sideways on charts. Key levels to watch are the range lows at 45.83 and the range highs which slope down to 50.00.

Latest Pound / Canadian Dollar Exchange Rates

	Live: 1.8599▼ -0.01% 12 Month Best: 1.8915
*Your Bank's Retail Rate	1.7966 - 1.8041
**Independent Specialist	1.8338 - 1.8413 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Purely from a technical perspective the structure of the range makes it difficult to predict which way it is likely to breakout from, since the flat range floor – with two rebuttals at exactly the same price of 45.83 - favours a bearish breakout, whilst the fact the pair was in a previous up-trend favours a bullish breakout.

From a fundamental perspective there is also no clarity give $50 a barrel was always considered a natural equilibrium level and short-term target, and any gains above would be dependent on a major change in the fundamentals. It is also the level at which North American shale operators become profitable again, leading many of them to reopen their wells and increase supply, with the consequent detrimental impact on overall oil prices.

From a data perspective the Ivey PMI, a general business activity gauge, is considered to be one of the most significant data releases in the week ahead.

It is out on Thursday July 7. It came out in contraction territory last month, with a reading of 49.4 (below 50 is contraction; above is expansion).

Analysts at broker TD Securities commented about the up and coming release that:

“On balance, ongoing challenges in the energy industry paired with continued (though cautious) optimism among firms exposed to the United States should allow the balance of opinion on future sales to drift higher to +20.”

On inflation TD say the Ivey report is expected to say that expectations remain anchored at the bottom of the range:

“Finally, expectations of future inflation are also expected to coalesce in the bottom half of the Bank's 1-3% target range.”