Two important data releases at the end of the festive season put downwards pressure on the Canadian Dollar at the end of last week and led to GBP/CAD holding above the 1.66-65 line.
The first was a slowdown in economic growth with GDP reading at -0.3% in October.
The second a lower-than-expected inflation result of only 1.2% for November.
Both results are expected to increase pressure on the Bank of Canada (BoC) to adopt a more dovish stance and potentially even cut interest rates.
By cutting rates the hope would be inflation rises towards the Bank's 2% target and economic growth ticks higher.
However, from a currency perspective Interest rate cuts are typically negative as foreign investors channel funds into alternative higher-yielding jurisdictions.
Despite the negative Canadian economic data, the technical picture remains very marginally bearish for GBP/CAD:
The pair is still vulnerable to a breakdown if it moves below the 1.6473 lows.
Such a move would confirm more downside to a target at 1.6375 where the S1 monthly pivot is situated, a level where traders often fade the trend and an obstacle to prices.
A break below 1.6300 would further indicate a breakdown to the next target at 1.6200.
Could the BoC Cut Rates?
A growing number of analysts are beginning to entertain the notion that the BOC might decide to cut interest rates in 2017.
Although interest rates are already low at 0.5%, advisory service Capital Economics expect the BOC to cut them further in H1 of 2017:
“The underlying momentum in the economy remains sluggish and circumstances are not likely to improve next year, mainly because of a worsening downturn in housing investment.
“We expect GDP growth to be only 1.2% in 2017, barely changed from an already muted 1.3% in 2016.
“Core inflation will soften and, in contrast to the consensus, we expect the Bank of Canada to cut interest rates in the first half of next year to only 0.25%."
Capital Economics are not the only ones suggesting the BOC might get more doveish, CIBC Economics’ Toronto-based Nick Exarhos, also sees the BOC adopting a more dovish stance, after the surprisingly poor GDP data for October.
“Canadian growth is poised for a slowdown in the fourth quarter, and October GDP set the tone.
“A 0.3% drop in output was worse than expected, with significant weakness tied to goods-producing industries. Q4 growth is now likely to modestly undershoot the Bank of Canada’s 1.5% growth forecast, which—in addition to the weak inflation figures released yesterday—suggest it will continue to underscore a dovish policy stance, “ said Exarhos.
Sterling Remains a Slave to Sentiment
Turning to the Sterling side of the GBP/CAD equation, the Pound has recently depreciated marginally from a resurgence in “Hard” Brexit talk.
The downside was offset, however, by the possibility of implementing a transitional phase in which the UK would buy access to the common market.
International Trade Secretary Liam Fox has suggested a transitional phase might resemble the Turkish model, however, Theresa May did not give any specific details about how an interim arrangement might look when she mentioned it.
If there is any further talk of Brexit in the week ahead then that could move the Pound, since data is very thin, with only Mortgage Applications in November in the pipeline, which is forecast to show a rise of 41.6k in November, from 40.3k in October.
The UK currency remains largely headline-driven, which requires those watching the market to keep an eye on the newswires.