Canadian Dollar Forecasts Cut at ABN Amro, Pound has Opportunity to Build on Recent Recovery
The Pound to Canadian Dollar exchange rate continues to advance thanks largely to this week's intervention by the Bank of Canada having undermined the domestic currency.
The outlook for the Canadian Dollar has certainly turned softer following this week's Bank of Canada (BoC) event.
GBP/CAD lost ground and fell to 1.59 during the BoC rate meeting but weakness proved temporary as the pair but then recaptured that lost ground almost as quickly and moved back up to the 1.61s during the press conference:
The sudden rebound was due to the Canadian Dollar weakening on Governor Poloz saying that the Bank was considering easing monetary policy by either cutting rates or introducing quantitative easing.
"Wednesday’s BoC event delivered a whipsaw move for CAD as market participants considered the statement tone shift back to neutral (CAD bullish) against a press conference opening statement in which the Governor declared that the Governing Council had ‘actively discussed the possibility of adding more monetary stimulus at this time’ (CAD bearish)," explains Eric Theoret at Scotiabank.
And it is not just GBP/CAD that is looking more constructive - the broader CAD complex is now starting to adopt a softer tone.
"We have become less optimistic on the Canadian dollar (CAD) and now expect a more modest appreciation against the US dollar in 2016 and 2017," says Roy Teo, Senior FX Strategist at ABN Amro.
Teo notes the recovery in crude oil prices has since August failed to support the CAD. Analysts at CIBC Capital Markets say the reason for this breakdown is that it is 'the wrong kind' of oil price rally.
Howeve, Teo argues that concerns surrounding oil are being superceded by market concerns that the Bank of Canada is turning more dovish in response to a run of weaker-than-expected data releases over recent months.
ABN Amro have subsequently cut their forecasts for the Canadian Dollar, but they cite an additional factor for the move:
"Our view that the Fed is likely to tighten monetary policy twice in 2017 is slightly more positive than what is priced in by financial markets. Hence we see opposing forces driving the CAD well into 2017. On balance we now expect a more stable CAD versus the USD. We have revised our 2016 and 2017 year end USD/CAD forecast to: 1.30 (from 1.27) and 1.27 (from 1.20) respectively."
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 Outlook Improving
Sterling was also stronger on Thursday, after comments from Chancellor Hammond to the Treasury select committee on the day before indicated that the government was considering a range of approaches to the Brexit negotiations, not just the ‘Hard Brexit’ markets had been factoring in after May’s party conference speech.
We believe the combination of softer Brexit promise and more dovish Canadian Central Bank outlook has improved the forecast for the GBP/CAD exchange rate, although, beyond the little bounce following Poloz’s presser, there has not been much follow-through higher.
Nevertheless, a break above the 1.6287 highs would confirm a change in the short-term trend and more upside.
Such a break would probably lead to a move up to resistance from the S2 monthly pivot at 1.6500, which should cap further gains:
Gains have been difficult to attain and further upside will prove difficult says Scotiabank’s FX Strategist Saun Osborne.
“There has been little or no additional advance in the GBP in the past 24 hours, in fact, despite relatively positive price action yesterday and short-term patterns suggest good selling interest has emerged in the mid/upper 1.61 area in the past few hours.”
Osborne remains bearish whilst the pair stays below 1.66, with resistance at 1.62/3.
“We remain bearish while the GBP trades below 1.6615. Levels near 1.62/1.63 should attract GBP sellers if we can even get there.”
