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Pound-to-Canadian Dollar Rate: Week-Ahead Forecast, News and Data for the Coming Week

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The Canadian Dollar keeps powering higher based on a positive fundamental outlook for the economy, and this has had the effect of pushing the GBP/CAD pair lower.

Over the course of the past month, the Pound has lost more ground to the Canadian Dollar than it has to any other major currency. 

The GBP/CAD exchange rate is nearly 3% down on the month, while the Canadian Dollar has out-performed all other G10 and G20 currencies.

The Canadian Dollar clearly has the momentum, and is therefore hard to bet against at this point.

Our technical studies of the GBP/CAD exchange rate note that whilst it has reached a solid support level and there could be some relief to be had for the Pound, the Canadian Dollar ultimately remains favoured.

The Pound-to-Canadian Dollar exchange rate has sold off to the level of a major trendline drawn from the October lows at 1.5834.

GBPCADSep10

It has since bounced and risen up to 1.6041.

Although the combination of the trendline and the bounce are bullish they are not enough on their own to convince us of a reversal of the downtrend and the pair remains vulnerable to more selling pressure.

A break below the 1.5834 lows would provide sufficient confirmation of more downside - to a possible next target at 1.5700.

Despite seeing the possibility of more upside to 1.62, Scotiabank's FX Strategist Shaun Osborne is sceptical bulls can reverse the trend and is still overall bearish.

"However, the broader downtrend remains intact and the underlying bear trend is deeply entrenched here too; we think the scope for GBP gains are liable to remain limited though price signals today do suggest some risk of a push to the low 1.62s (trend channel ceiling, at least)," says Osborne.

Events and Data to Watch for the Canadian Dollar

Canadian data is rather limited in the coming week, with the most significant data being for housing.

Recall the Canadian housing sector is running red-hot at present, so economists will be watching the figures with interest. 

We reported last week that the Canadian economy, and therefore CAD, are at risk of the housing sector reversing.

"After a strong growth performance so far this year, Canada’s economy looks on the verge of a downturn as the housing boom turns to bust,” says Paul Ashworth at Capital Economics.

House prices are rising at around 14% on an annualised basis; the last time we saw this kind of growth was back in 2007 - the year before the great financial crisis which was sparked by the collapse in the US subprime housing sector.

"Canada’s household debt levels are high and while raising rates can temper the demand for more debt, it might also prove the catalyst for a destabilising correction in house prices," says David Bloom, an analyst with HSBC.

Housing Starts in August are out at 8.15 BST on Monday, September 11 and are forecast to come out at 216k - slightly below the 222k of July.

The New Housing Price Index, meanwhile, is out at 8.30 on Thursday and is forecast to show a 0.2% rise in July.

Events and Data to Watch for the Pound

It looks set to be a busy week for the Pound with the Bank of England announcing their rate decision on Thursday, as well as data showing inflation, unemployment and wage growth.

The Bank of England is not widely expected to announce a change in policy on Thursday at 12.00 BST, and according to Canadian investment bank TD Securities, the voting is expected to show a 6-2 split in favour of keeping interest rates unchanged.

BK Asset Managment's Kathy Lien, highlights the continued weakness in "consumer spending and inflation," as a reason to expect the BOE not to, "veer away from its cautious tone."

Forecasters are expecting a rise in inflation when data is released at 09.30 on Tuesday, September 12.

The headline rate is expected to rise to 2.8% year-on-year from 2.6% in August 2016, and core inflation to 2.5% from 2.4% respectively.

Without a corresponding rise in wages, higher inflation is likely to weigh on the Pound rather than support it, as it simply results in everyone being poorer.

Which is why data out on Wednesday, September 10, is likely to be so important, as it will show the state of the UK labour market and wages. Expectations are for earnings to rise by 2.3% in August.

A beat on expectations in this number could prove to be supportive of Sterling.

Remember to keep an eye on politics at the start of the week as parliament intend to vote on the government's great repeal Brexit bill.

The Labour party are currently against the bill, which they say gives too much autonomous power to ministers to make changes to EU law once it is transposed into the UK legal system.

A small number of conservative MPs are also against the bill which means, the vote could be close given the government's slim majority.

A failure of the bill to pass, would cause volatility for the Pound but it is not clear in which direction.

The increased uncertainty caused by the Bill's failure would argue for Sterling to devalue owing to the increased uncertainty such an outcome would bring.

However, we see little chance of Conservative lawmakers rebelling against the Government; the party's slim majority means there is little appetite for an election which they could well lose considering Labour and the Conservatives are near even in the polls.

 

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