Canadian Dollar (CAD) Pushes the GBP-CAD Rate Yet Lower on Tuesday

The pound sterling (Currency:GBP) has hit a wall against the Canadian currency and the 2013/2014 rally now appears to have run out of steam.

On Tuesday we are witnessing further declines in the UK currency's value; GBP-CAD has moved lower by 0.28 pct to reach 1.8354.

The rate is now certainly stuck in a rut and we would expect softer trade to continue in the near-term.

Canadian manufacturing sales due tomorrow will most likely trigger some movement outside recent levels, but for now we see some sideways trading" says a note from analyst Sasha Nugent at Caxton FX.

Regarding the USD-CAD, "this currency seems to move in spurts, only reacting to market catalysts. That being said, the anticipated play in the near term is for a continuation of the recent range bound trade with topside resistance around 1.1110 and support at the 1.1000 levels," says Jonathan Terela at Western Union.

The Canadian calendar is quite busy this week with Governor Poloz due to speak tomorrow, and he is likely to maintain a dovish tone without offering much new. Canadian activity data, including manufacturing tomorrow, wholesale on Wednesday and retail on Friday should generally show rebound from weak Dec data, but the key release is Feb CPI on Friday. Feb data has extra uncertainty attached given large seasonal price changes tend to be seen. If feed through from prior CAD slippage sees yr/yr growth pick up again the BoC may start to fee comfortable that inflation, if still below target, has bottomed out, but if the seasonal price hikes are small, yr/yr data could dip enough to have the BoC debating easing.

Global conditions don't favour the Canadian unit

However, there is a sense that the likes of the Australian, New Zealand, and Canadian dollars will struggle amidst the the current volatility in global markets.

"We can’t really see commodity-bloc currencies doing particularly well in this environment. Global trade and reserve growth are already constrained, and neither a weak US nor a weak Chinese economy are good for commodity prices," says Stephen Gallo at BMO Capital Markets.

Gallo says the US dollar is likely to advance against the CAD, and we see this as being supportive of the GBP-CAD pairing:

"We therefore see more upside risk in USDCAD today on the kneejerk if US retail sales are stronger than our economists’ call of +0.1% (ex-autos). The move lower in USDCAD has also not been substantiated by the current 5yr swap rate differential, and that should leave the pair vulnerable to topside on better US data."

US dollar to remain heavy against the CAD

However, analyst Shaun Osborne at TD Securities cautions that the Canadian unit is likely to remain supported against the US dollar, and this will likely keep gains in GBP-CAD capped:

"USDCAD remains trapped in a right range. Event risk is evident for the CAD this week as well—Governor Poloz speaks Tuesday at the Halifax Chamber of Commerce in NS and will hold a press conference afterwards.

"On Friday, Canada releases key data—retail sales and CPI—which may go some way to shaking the CAD out of the consolidation range in place in the past few weeks—one way or the other. We favour s topside break out above 1.1130.

"USDCAD retains a heavy bias so far today. The CAD is well-supported alongside the broadly firmer AUD and NZD, while safe-haves such as the JPY and CHF are under-performing.

"USDCAD is pressuring support in the mid 1.10 area and easing below the 40-day MA at 1.1072 in early trade today—though we don’t think the move is likely to extend too far at present."

British pound unable to maintain uptrend vs Canadian dollar

The below screenshot tells a story - the UK unit has simply lost upward momentum against its Canadian counterpart. We believe it would take a massive shot of good news for the £ to resume the uptrend.

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What The Forecasters Are Saying About USD-CAD

"USDCAD has remained a decent ‘barometer’ of the macro bias towards China. With no subsequent negative shock in the oil price overnight, USDCAD weakness on CAD short covering tells us that today’s tone has been a bit more positive than yesterday’s. The technical failure of USDCAD above 1.115 yesterday also appears to have compounded the move lower this morning." - Stephen Gallo at BMO Capital.

Canadian Dollar vs British pound exchange rate: GBP/CAD tipped to remain around 1.85

Technical Forecasts: GBP-CAD

"GBPCAD is feeling the pressure of a stymied topside move a little more into the close of the week. The market is blocked at 1.8645 and losses through the last couple of sessions have put a little more pressure on short-term support in the low 1.84s. Near-term, downside risks may be building a little more significantly (high 1.82s or, possibly, back to the 1.80 area). We Still rather think the broader trend up is secure at this point but the lack of progress through the recent range highs warrants attention. A modest correction may be about to unfold. A low close on the week would support that view." - TD Securities.