The Pound-to-Canadian Dollar Rate's Forecast For the Week Ahead

- GBP/CAD in a short-term downtrend at the start of the new trading week after UK growth fears take hold 

- The main release for Sterling is first quarter GDP data on Friday 

- The main event for the Canadian Dollar is a speech from Governor Poloz of the Bank of Canada 

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GBP/CAD is faltering at the start of the new trading week as UK growth remains in doubt and increasingly contrasts with Canadian growth potential.

The Pound-to-Canadian Dollar has declined from a peak of 1.8415 reached on March 19, to a close price at the end of last week of 1.7870.

After a whole uninterrupted week of selling the short-term trend can be assumed to have reversed and is now down, which means the bias is for that downtrend to continue.

A break below the 1.7741 lows would probably confirm an extension down to a target at 1.7600.

The exchange rate has temporarily pulled back to an important long-term support and resistance level at the 1.7815, May 2017 highs.

The fact it is trading on this level, which might act as a support, does slightly muddy the water forour bearish forecast as it suggests a heightened possibility it might rotate and move higher.

Yet overall the short-term trend remains bearish and so we prioritize the possibility of further downside rather than a rebound higher, even if the support level is there and the longer-term trend is somewhat less clear.

Data and Events to Watch for the Canadian Dollar

The most important event in the week ahead for the Canadian Dollar is the testimony of the governor of the Bank of Canada (BOC), Stephen Poloz to the Canadian parliament on Monday, April 23 at 20.30 GMT.

The BOC surprised investors in April by leaving interest rates unchanged. Inflation is now above the BOC's 2.0% target and so the Bank was expected to respond by putting up interest rates, however, the rise was put down to "transitory" factors by governor Poloz - and whether he continues with this line on Monday may be significant for the Canadian Dollar.

Higher interest rates generally strengthen a currency as they lead to greater inflows of foreign capital, drawn by the promise of higher returns; and vice-versa for lower.

It seems unlikely he will have changed his opinion so soon after the meeting - not on inflation or indeed the other major factor keeping interest rates lower than they might ordinarily be - uncertainty over the outcome of NAFTA renegotiations.

"We look for Governor Poloz to maintain a cautious tone in his Parliamentary testimony, echoing many of the speaking points from the MPR and post-decision interviews. In particular, we expect to him reference higher potential output, transitory inflation tailwinds, the economy's sensitivity to higher rates, and pockets of labour market slack," says Canadian based investment bank TD Securities on the subject.

News and Data to Watch for the Pound

The main release for the Pound in the week ahead is the first release of GDP growth data for the first quarter of 2018, which is out at 9.30 GMT on Friday, April 27.

Expectations are for growth to slow slightly to 0.3% quarter-on-quarter (qoq) compared to 0.4% in Q4 and to remain unchanged at 1.4% compared to the year before (yoy).

This is no doubt due to the bad weather in Q1, but given growing doubts about the UK's economy in general the market may be expecting a lower result, which would further lower the probability of the BOE raising interest rates in May.

From being 96% certain the BOE would hike interest rates two weeks ago, the market is now only 50% sure - a lower GDP reading would reduce that even further. Generally higher interest rates equal a stronger currency and vice-versa as higher rates attract inflows from foreign investors drawn by the promise of higher returns.

Some analysts are even more pessimistic about Q1 growth.

"We are penciling in a slowing in the growth pace from +0.4% qoq in Q4 2017 to +0.2% in Q1. Furthermore, if anything, risks look to be to the downside of a +0.2% print," says Ryan Djajasaputra of Investec.

Although Djajasaputra puts it down almost entirely to bad weather rather than anything else, and thus a temporary negative.

"We suspect that Q2 GDP will not look quite as soft, especially with the household cash squeeze slowly turning around," adds the analyst.

Apart from GDP data, there are no other top-tier releases for the Pound in the coming week, but GfK Consumer Confidence is expected to continue showing a negative -7 reading in April when it is released on Friday at 00.01.

There are also three surveys from the Consortium of British Industry (CBI), the Business Optimism Index and the Industrial Trends Orders at 11.00 on Tuesday, followed by the Distributive Trades survey on Thursday at 11.00, which is forecast to show a rise to 5 from -8.

In addition, Public Sector Borrowing figures for March are out on Tuesday at 9.30.

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