Canadian Dollar Charts Hint of Extended Recovery in GBP/CAD Next Year  

• Bullish technical trend suggesting GBP/CAD could rally further
• Scale of move so far leaves scope for consolidation short-term
• GBP/CAD softer in midweek trade amid broad losses for GBP
• CAD lower Vs USD et al after CA inflation defies expectations 

Image © Pound Sterling Live

The Pound to Canadian Dollar exchange rate fell in mid-week trade and could be likely to further consolidate its recent gains over the coming days and weeks but a bullish technical trend on the charts also hints of scope for Sterling to extend its final quarter rally during the opening months of next year.

Sterling sustained widespread losses in Wednesday trading when only the New Zealand Dollar came close to matching the breadth and depth of declines seen relative to others in the G10 grouping.

Meanwhile, the Canadian Dollar's resilience served to accentuate the mid-week decline in GBP/CAD, which began trading on Monday above 1.68 and close to nine-month highs but has since retreated below the 1.65 handle. 

"The snap higher in the pound is stalling around the 76.4% Fibonacci retracement of the 2022 decline in late year trade but we think GBPCAD regaining the post-2016 (Brexit) trading range suggests that GBP strength can extend in H1 2023 towards the 1.75/1.80 zone potentially," says Shaun Osborne, chief FX strategist at Scotiabank.

Osborne also notes that GBP/CAD's rally from late September lows around 1.40 left two trend reversal signals behind in its wake on the charts including a bullish engulfing line and hammer candlestick.

Above: Pound to Canadian Dollar rate shown at daily intervals with Fibonacci retracements of 2022 decline indicating possible areas of technical resistance for Sterling and selected moving-averages denoting possible technical supports. 

"The sharp, extended move higher in Q4 leaves a fair bit of corrective potential below the market in the event of a sustained consolidation developing early in the new year. We think GBP losses should find firm support on dips to the 1.60/62 range, however," Osborne writes in a Monday review of the charts.

While the medium-term technical trend on the charts may be becoming more supportive, Sterling was mired in losses on Wednesday and still has to navigate a troublesome economic outlook marred by high energy prices, rising interest rates and impaired public finances. 

These factors and the deteriorating condition of the global economy all feature among the numerous reasons for why many analysts have reservations about how much further the Pound could be expected to rise against seemingly more attractive currencies such as the U.S. and Canadian Dollars. 

"The latest reading on the UK's public sector finances is a reminder that the country's debt dynamics pose downside risks to sterling in 2023," says Stephen Gallo, European head of FX strategy at BMO Capital Markets.

"Total public sector net borrowing including the BoE but excluding public sector banks was £22bln. This was the largest deficit for any month of November since at least 1997," he adds in reference to public finance figures for November.

Above: GBP/CAD at weekly intervals with Fibonacci retracements of 2022 decline indicating possible areas of technical resistance for Sterling and selected moving-averages denoting both technical supports and resistances. Click image for closer inspection. If you are looking to protect or boost your international payment budget you could consider securing today's rate for use in the future, or set an order for your ideal rate when it is achieved, more information can be found here.

Meanwhile, Canada's Dollar remained one of the better performing major currencies of the year on Wednesday but had ceded ground to all G20 counterparts through the month leading up to December 21 and also faces an uncertain outlook going into the new year. 

"A decline in gasoline prices on the month, and an easing in the annual inflation rate in that category, drove the overall deceleration. However, partly offsetting that, food price inflation accelerated modestly," says Andrew Grantham, an economist at CIBC Capital Markets.

"Even though that deceleration in inflation is largely a gasoline price story at this stage, we still see the Bank pausing its hiking cycle and leaving rates on hold at the next meeting in January," Grantham adds in reference to November inflation figures released in Canada on Wednesday.

Wednesday's mixed performance from the Loonie came alongside Statistics Canada figures suggesting that inflation fell more slowly than was expected by economists for November after the annual pace of price growth came in at 6.8% for November, down from 6.9% but above the 6.7% envisaged by consensus. 

Despite the miss against market expectations on Wednesday, Canadian inflation was on track in November to decelerate more quickly for the final quarter overall than expected by the Bank of Canada (BoC), which currently forecasts an annualised inflation rate of 7.1% for the period.