GBP/CAD Forecast: Initial Near-Term Target Seen at 1.6682

The Canadian Dollar has been one of the main benefactors of the poor U.S. data from Friday and it continued to show slight improvement throughout trading through the start of the new week.

USD/CAD has fallen towards to the lower end of the trading range we have seen as of late, shrugging off weak Canadian numbers last week and instead benefited from the movement in the price on crude.

The main driver behind the Canadian Dollar's appreciation has been a rebound in crude oil prices, which rose to $46 on Tuesday the 16th, up from a low of $41 seen at the start of Friday the 12th August. 

The Canadian Dollar is highly correlated to the oil price as this commodity is one of the country’s largest export, and so any price gains in the commodity tends to impact on CAD.

GBP/CAD is meanwhile quoted at 1.66653 at the time of writing on Tuesday.

Momentum is certainly pitted against Sterling with GBP/CAD finishing the week ending 12th August down by over 1.5% from where it started.

The Pound is hampered by heightened expectations of yet more monetary easing from the Bank of England (BoE) being announced over coming weeks and months. 

A big hint that further GBP-negative action could be introduced was dropped by key BoE decision-maker Ian McCafferty who, whilst normally not favouring more stimulus, said he expected the bank to announce further measures, including lower rates as more QE.

Stimulus is negative for a currency as it increases the supply of money, reducing individual unit value, and also reducing interest rates.

From a technical perspective the pair remains in a strong short-to-medium term downtrend, with a further break below support from the S1 monthly pivot at 1.6806 confirming the pair is headed towards our initial target at the 1.6682 lows:

Scotiabank’s FX Strategist Shaun Osborne also has a bearish outlook for the pair:

“GBPCAD remains under subtle pressure. The GBP has moved sideways essentially over the past 24 hours but the underlying trend lower looks firmly in place.

The breakdown from the July consolidation (bear wedge) targets a retest of 1.67 at least and we do not rule out a drop to the 1.60 area moving forward. New lows will add to what is already a well-entrenched bear cycle..”

The most important data release for the Canadian dollar is CPI data out on Friday August 13, which is forecast to show a 2.1% rise yoy in July – the same as in June.

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.

 

Recent poor data has weighed on the loonie so analysts will probably be expecting a fall in inflation in July, so a gain would surprise and support the loonie.

British Pound Subject to Some Big Data Releases This Week

With the Bank of England pumping money into the economy, and devaluing Sterling in the process, analysts will be watching for evidence in the economy that would suggest even more easing will be announced before the end of 2016.

One of the key numbers to watch will be inflation.

With Sterling falling following the EU referendum the Bank has recently had to ramp up their inflation forecasts, owing to the rising cost of imports. 

The Bank notes the 2% level they are tasked with targeting could be hit a lot sooner than originally envisaged. 

Should inflation rise faster than reflected in the inflation upgrades, the Bank will certainly get nervous. Such an uninvited acceleration in prices could well prompt the Bank to consider holding back on that stimulus, which in turn is a positive for the Pound.

In this week's release analysts are forecasting a 0.5% rise compared to July last year.

On a monthly basis inflation is expected to rise 0.2%.

On Wednesday the UK will release important employment and earnings data, however, due to it covering only June which is mostly before the EU vote its significance this time will be lessened.

Average Earnings is expected to rise a basis point to 2.4% from 2.3% previously. The Unemployment rate stands at 4.9% and 3month/3month change was 194k in May

Retail Sales data on Thursday rounds off the week.

This data will be important because it is also for July, and so will provide an idea for how well certain parts of the economy are bearing up.

Recent data from the British Retail Consortium (BRC) showed an unexpected 1.1% rise in retail sales in July when investors had been forecasting a Brexit-inspired contraction.

The higher than expected result was explained as a ‘life goes on’ shrug of the shoulders response from consumers and due to households not yet feeling a material impact from the referendum result. Especially hot weather which increased barbeque, charcoal, food and drink sales, as well as fashion sales was also a factor.

The 0.2% rise from -0.9% previously and steady 4.2% gain y-o-y forecast by analysts reflect BRC data’s increased optimism about July.