GBP/CAD Projections Confirm Growing Upside Potential
The Canadian Dollar has suffered notably as oil prices take a dip, reinforcing our latest forecasts which suggest the GBP to CAD conversion could see higher valuations over coming days.
The Canadian Dollar is an underperformer in current market conditions with a fall in oil prices being cited as a key driver of these losses.
US Light Crude fell sharply on Monday the 22nd as a strengthening US Dollar combined with a number of different oil market conditions that would typically command lower prices.
China increased exports of refined oil products, Iraq and Nigeria remain defiant about working with OPEC and possibly halting production of oil.
The US added oil rigs for an 8th consecutive week confirming a solid increase in the supply of oil out of what is now the world's biggest producer is likely.
All this plays negative for Canada, a major oil producer and a country whose Dollar is tightly correlated with the movement in oil prices.
Economic Data Drives a Wedge Between CAD and GBP
Sterling has been rising against the Canadian currency since the 16th of August.
The recovery has largely been data-driven with official figures showing the impact of Brexit to be more muted than anticipated.
In particular a higher-than-expected 1.4% rise in Retail Sales, got the Pound moving, this was well above the 0.1% expected due to the predicted negative shock of Brexit.
Retail Sales in Canada, in contrast, were disappointing, coming out lower than expected, and revised down in the prior period.
Retail volumes fell for the third time in four months.
The breadth of the decline was also disappointing with ex-auto sales falling at the fastest pace since December last year.
Lack of employment growth and oil prices were seen as the primary reasons for the slower sales.
“Weak employment creation could have been a factor - the Labour Force Survey showed only 11,000 net new jobs created in Q2, the lowest tally in two years. Higher gasoline prices in the quarter likely had a negative impact as well,” said NBFs Krishen Rangasamy.
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.
Charts Confirm Sterling Turning More Bullish
The data, and a now oversold Pound, allowed the Pound to Canadian Dollar to correct back from the August lows forming a textbook a-b-c pattern in the process.
The exchange rate has since pulled back but if it rises and breaks above the top of the correction at 1.6900, also breaching a key trend-line for the move down from the May highs, it will probably extend higher, which would be a very bullish sign, and probably lead to a continuation up to a target at 1.7000.
Such a move would also indicate a probable broader reversal was taking shape.
A move below the a-b-c correction ‘b’ wave lows at 1.6722, however, would signal further downside to the 1.66 lows and a target at 1.6615.
Commenting on the pair, Scotiabank’s FX strategist Shaun Osborne said:
“GBPCAD has been confined to a narrow range so far today but the pattern of price action looks weak and underpins our generally bearish view of GBP prospects."
Data in the week ahead
The week ahead is thin in terms of Canadian data, with the main release Wholesale Sales in June (mom) out on Monday.
Of much more interest will be data for the pound, starting with the Consortium of British Industry’s (CBI’s) Order Book Balance for August on Tuesday 23.
This will be the first data for the month of August, so may gain extra attention due its significance in assessing the impact of Brexit.
The July result was -4, which was better than the -6 expected, and was at about the level of the long-run average.
Wednesday sees the release of British Banking Association (BBA) Mortgage Approvals data, which is of limited import to sterling.
There is more significant data out on Friday, however, including Q2 Business Investment (qoq), and then the final estimate of Q2 (qoq) GDP growth data.
The preliminary figure was 0.6% and the consensus estimate for the revised figure is expected to remain at 0.6% qoq (2.2% yoy).
The data, however, does not reflect the impact of Brexit which occurred right at the end pf the period.
