Pound-to-Canadian Dollar Rate 5-Day Forecast: Bearish
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- GBP/CAD now slightly bearishly biased
- Possibility pair has peaked after ‘exhaustion break’
- Politics returns as key driver of Sterling
- Bank of Canada to update markets
The Pound-to-Canadian Dollar rate is trading at 1.7360 at the start of the new week, little changed from the week before but month-on-month Sterling is nearly 2.0% lower.
From a technical standpoint, the trend is looking marginally bearish.
The pair rose up and temporarily broke through the top of an ascending channel before reversing and falling back inside.
The break was probably an exhaustion break indicating the trend had peaked.
The reversal lower has been strong enough to expect more downside and although the pair has been going sideways for several weeks following the initial drop, it looks more likely to eventually continue lower than rise, indeed it is possible to interpret the activity as an incomplete zig-zag pattern with an unfinished leg still to unwind.
For confirmation of more downside the pair would have to break below the range lows at 1.7315 to open the way to a decline down to the next key support level at 1.7200, at the lower channel line and just above the 200-day moving average (MA), since large MAs often act as important support levels propping up the price or even generating a complete reversal.
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The Canadian Dollar: What to Watch this Week
The main event for the Canadian Dollar is the Bank of Canada (BOC) rate meeting on Wednesday at 15.00 BST.
The BOC is not expected to change interest rates at the meeting so the impact on the Canadian Dollar will depend on the language of the accompanying statement.
Although data and the outlook has improved the consensus appears to be that the BOC will not yet be ready to raise interest rates.
The BOC may signal a greater willingness to raise rates in the future, however, in its statement, and that would push up the Canadian Dollar.
“While subsequent economic figures have shown some improvement, it is still likely too early for the Bank of Canada to contemplate a rate increase. February retail sales rose 0.8% month-over-month and the March CPI quickened to 1.9% year-over-year, while employment figures have been solid overall. If the overall strengthening of economic growth were to continue, we would expect the Bank of Canada to raise its policy rate a further 25 bps this year,” say Wells Fargo in a briefing to clients.
Raffi Boyadjian, an analyst at broker XM.com notes the Bank’s ‘Spring Business Outlook Survey’, which was released last week, which pointed to declining business sentiment.
He is however more neutral in his stance, seeing a risk the BOC could swing either way.
“The Bank has raised rates five times since the summer of 2017 but has been on hold since October 2018 when it last hiked its overnight rate. However, despite becoming more cautious, the BoC has maintained a tightening bias and Governor Stephen Poloz recently suggested he thinks the slow patch in the Canadian economy will be temporary,” says Boyadjian, adding:
“Should Poloz maintain a similar tone at his press conference next week, the Canadian dollar could be in line for a small lift as markets are anticipating a somewhat more dovish stance. The loonie has been caught in a range versus the US dollar as a worsening outlook has offset higher prices in oil – Canada’s biggest export."
The Pound: What to Watch this Week
Politics is back on the agenda for Sterling as UK parliamentarians return to their desks.
A top member of Prime Minister Theresa May's Conservative Party will tell her in the coming week that she must step down by the end of June or her lawmakers will try again to depose her, the Sunday Times reported, without citing sources.
The pressure on May comes amidst a precipitous drop in support for the Conservative party after a lengthy Brexit delay was announced, with voters apparently flocking to the newly-formed Brexit Party of Nigel Farage. We see the implications of the sudden shift in domestic politics as posing downside risks to Sterling with a 'Brexit at all costs' likely to come on October 31.
The Conservatives, under May or a new leader, know further delays will only deeply damage the party's standing with the public.
A change in leader of the Conservatives could mean the UK could be under the leadership of a 'Brexiteer' Prime Minister by late summer, we believe this creates the kind of uncertainty that would weigh on Sterling over coming weeks and months.
According to the report, the Conservative Party could go as far as changing party rules on leadership change.
May survived a vote of no confidence in December with current party rules stating parliamentarians cannot challenge her again until a year has passed. Graham Brady - who oversees party rules - will tell May the rules will be changed unless she quits, the Sunday Times reports.
There is also the chance of a vote being held on whether the UK should remain in a customs union, which could cause a surge higher for Sterling if affirmative.
It is a thin week for UK data with the most important releases being the UK public borrowing data and figures from the Consortium of British Industry (CBI), which is often a useful leading indicator for the broader economy.
UK public borrowing basically measures how much the government needs to borrow to meet its outgoings in the month in question. The data on Tuesday is forecast to show a relatively small £50m (£0.05bn) sum was required to cover the shortfall.
The chart below shows how over time the government has reduced the amount it has needed to borrow to cover its outgoings. This is obviously a positive sign for the economy, both because it reduces the country’s reliance on outside lenders which can leave its currency more vulnerable, and also because it suggests the economy is generating more tax revenue, which is a sign of increased activity.
Public sector borrowing is not likely to move Sterling unless it surprises grossly higher or lower. Nevertheless, it provides useful background information. It is released at 9.30 BST.
The other key releases for the Pound are the CBI distributive trades and CBI industrial trends orders reports.
The former is a gauge of the “wellbeing of the retail sector” based on a survey of 150 retailers; the latter is a survey of manufacturers.
Both are considered important leading indicators and can impact on the Pound if the actual result differs substantially from the expected.
There is no official forecast for the retail survey which came out at -18 in March, but there is an official forecast for the manufacturing one, which is forecast to rise marginally to a balance of 2 from 1 in the previous month of March. The balance reflects the difference between positive and negative responses.
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