Canadian Dollar's Outlook Improves: CAD Tipped for Gains vs GBP and EUR But USD Could Strengthen

However, 'one swallow does not a summer make' - what are the forecasts telling us? Is the rally we are seeing set to last? We take a look, see below. Firstly, rates for your reference (04/09):

• At the time of writing we see the pound sterling to Canadian dollar trading 0.80 pct lower on last night's closing rate, 1 GBP converts into 1.7784 CAD.
• The US to Canadian dollar is trading 0.11 pct lower, 1 USD converts into 1.0877 CAD.
• The euro to Canadian dollar exchange rate is 1.64 pct lower, 1 EUR converts into 1.4084 CAD.

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Outlook Deteriorates for CAD vs USD

Turning to the outlook, Eric Theoret at Scotiabank notes the US dollar is turning positive against the CAD from a technical perspective once more:

"USD/CAD is flirting with a decisive break above its 9 and 21 day MA’s (1.0912 and 1.0921, respectively) as the RSI climbs above 50 while the bearish MACD softens back toward neutral."

According to Theoret the focus turns back to 1.0950 area as an immediate target.

Analyst Shaun Osborne at TD Securities does however warn that resistance to sustained gains in USD/CAD will be significant:

"USDCAD’s rebound Friday did not only deliver some bullish news on the short-term charts.

The picture on the daily chart looks quite constructive too after the dust settled—with the end of week session putting in a bullish (outside range) signal on the daily chart.

"With spot back above the 200-day MA, near-term prospects look a little more positive and support the impression of near-term upside risks for the market.

"However, we can’t ignore the fact that last week saw some very negative price signals overall (bearish weekly outside range) so we have to expect strong resistance at 1.0990/00 to cap near term."

Pound Sterling vs Canadian Dollar: GBP/CAD Caution Urged on Sterling

Turning to the sterling / CAD, we see the UK unit remains vulnerable to further moves lower.

Osborne tells us:

"GBPCAD’s strong reversal late last week developed from the base of the broader consolidation range that has developed since the start of the year.

"While the bounce has not extended too far that the moment (and the GBP is better offered again today), the rebound reflects our noted caution regarding just how much more downside potential there is in the cross at the moment.

"Broadly, the gentle decline seen in the cross since the start of the year looks like a minor consolidation after the sharp, 20%-plus rise seen in GBPCAD through 2013 rather than an all out reversal.

"The low 1.81 area is obvious resistance near-term but the GBP’s undertone will improve above here. Support is 1.7960/70."

Euro vs Canadian Dollar: Fade the Rallies

"EURCAD has stabilised and turned a little higher from long-term retracement support at 1.4265 but we are not convinced that the rebound can extend too much further. Yesterday, we suggested that minor EURCAD gains should top out in the 1.4350/00 range near-term and that 1.4420 should be very strong resistance in the medium-term now," says Osborne.

Furthermore, "short-term price signals indeed suggest (so far today) that the rise in the cross is slowing in the mid 1.43s. Having pushed below support at 1.4425, we still rather think there is more room for the 2012/2014 rally here to unwind (towards 1.3858—50% Fib retracement of the 1.21/1.56 move). While 1.4425 holds, look to fade rallies."

Bank of Canada Boosts CAD Rates With Hawkish Assessment of Economy

The CAD is on the move higher following the Bank of Canada's policy decision which sounded decidedly more hawkish than many had been expecting.

The Bank met expectations today by holding the overnight rate at 1.00% and maintaining a neutral policy bias.

In the statement, the Bank stated that both inflation and growth have performed as expected with the stronger than expected gain in the second quarter of 2014 generally offsetting the downward revision to the first quarter bringing “gross domestic product (GDP) to almost exactly the level the Bank projected in July’s Monetary Policy Report (MPR).”

"Once again, the Bank pointed to the rise in inflation as reflecting the temporary effects of exchange rate pass-through and, in the case of the headline rate, higher energy prices as well as other one-off, sector-specific price increases," says a comment from RBC Economics Research.

The statement highlighted the improvement in Canadian exports in the second quarter of 2014.

"With that said, the Bank stated that the upward momentum needs to be sustained in order to support business investment and employment gains, thereby signalling that more evidence that this has occurred will be needed before any change to policy will occur," say RBC.

One area of concern is the strengthening in housing market activity, which was stronger than the Bank expected and is preventing the risk associated with household balance sheets from dissipating.