Canadian Dollar to Pound Sterling Outlook Today: Exchange Rates Markets Look to Punish CAD Further

It seems like another day of vulnerability for the Canadian Dollar (CAD) as sterling rebounds on the back of UK data and directs the GBP/CAD rate towards 1.85.

"With sterling well supported, it is unlikely that the loonie can do much to limit sterling gains. We expect the pound will be able to trade above 1.85 in today's session," says Sasha Nugent at Caxton FX.

A look at the currency market place in mid-afternoon, London time, shows:

• The pound sterling to Canadian dollar exchange rate (GBP/CAD) is 0.41 pct higher on a day-to-day basis at 1.8513.
• The euro to Canadian dollar exchange rate (EUR/CAD) is 0.27 pct higher at 1.5243.
• The US dollar to Canadian dollar exchange rate (USD/CAD) is 0.4 pct higher at 1.1159.

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Addressing the outlook for the British pound to Canadian dollar, a bullish Shaun Osborne at TD Securities says:

"GBPCAD suffered a ‘flesh wound’ with last Friday’s heavy sell off. We say heavy price action rather than bearish because the slide left no obvious reversal signals on the short-term charts and we rather look for the firmer GBPCAD trend to get back on track fairly quickly as a result of still positively aligned trend intensity signals across the medium and longer-term timeframes.

"This should really mean limited counter trend corrections for GBPCAD for the moment. We look for firm support in the 1.8150 area (major support at 1.8050 now). We think the underlying trend makes the 1.90/1.92 range reachable."

US dollar looking to resume uptrend vs CAD

Further pressure on the Canadian dollar complex is likely to be added by a bullish US dollar which absorbed some heavy selling interest very well yesterday and managed to push higher over the course of the session overall—closing at the high of the day.

"With the US data flow hardly positive and risk sentiment improving somewhat over the course of the day as EM FX steadied (potentially a CAD positive), USDCAD regaining a 1.11 handle looks to be a singularly positive achievement against that backdrop," says Camilla Sutton at Scotiabank.

There is a little more US data on tap today (likely mixed for the USD on aggregate) so this morning's session should not be entirely devoted to waiting for developments in Turkey but it might feel a bit like that anyway.

"We remain positive on the outlook for funds and continue to target a near-term push through to the upper 1.12 area," says Sutton.

Technically, Scotiabank say they think price action yesterday was positive—the USD has based and rebounded about where we would have expected it to, based on the limited counter-trend corrections seen since September—and USDCAD remains well-supported on weakness today.  Intraday gains through 1.1125/30 might give the market a shot at testing 1.12.  We remain bullish in a broader sense too.  

Currencies move closer to fair value

Another interesting viewpoint from Sutton:

"Purchasing power parity (PPP) suggest that CAD has shifted from being overbought in early 2011 to relatively close to fair value; while AUD remains overbought but has dropped from its exaggerated levels.

"Typically, we do not put a lot of weight in PPP as currencies can remain overbought for years (AUD makes a great example of this) and our two year forecast horizon is too short for PPP to provide value. However as CAD is now the least over valued of all the primary currencies it does suggest that from a traditional medium‐term valuation approach downward pressure on CAD might shift to some of the other currencies that remain notably overbought (EUR and CHF are notable examples)."