Canadian Dollar Short-term Forecasts

• GBPCAD at risk of breaking down
• EURCAD could struggle to breach resistance
• USDCAD poised to advance despite recent pause

Image © Bank of Canada

The Pound's upside momentum against the Canadian Dollar has stalled, leading an analyst at one of Canada's primary banks to warn a reversal could soon occur.

Scotiabank analyst Shaun Osborne says his studies of the Canadian Dollar's technical charts also reveal the Euro will likely be contained near current levels but the Dollar should remain in the ascendency, despite its recent pause.

"GBPCAD also appears to have settled into a sideways range trade. The lack of upside momentum after the strong rebound from the late September low is disappointing (echoes of EURCAD here), with GBP gains capped at 1.6760," says Osborne in a regular weekly technical note.

Above image courtesy of Scotiabank. Set up a daily rate alert email to track your exchange rate OR set an alert for when your ideal exchange rate is triggered ➡ find out more.

The Pound to Canadian Dollar exchange rate (GBPCAD) rallied to 1.6758 last week but has since retraced three-quarters of a per cent from this high to quote at 1.6636 at the time of writing.

"A minor double top was in play after the GBP weakened below the October 10th low at 1.6604 but there has been a distinct lack of followthrough selling pressure on the GBP—so far—as well," says Osborne.

The analyst's technical studies reveal trend momentum oscillators are slipping into neutral on the daily DMI study, reflecting
trends on the intraday oscillator.

"Support is 1.6550/60, with the risk of the loss of a big figure or so below there," says Osborne.

By contrast, the Euro to Canadian Dollar exchange rate (EURCAD) is back at 1.4460 at the time of writing, suggesting another attempt at the October 06 high at 1.4497 is on the cards near term.

For now, Osborne is not confident about the Euro's ability to breach the recent highs, he says:

"Flat price action is somewhat disappointing in the context of the solid rebound (which formed a bullish weekly “morning star” candle pattern) from the late September drop to 1.4159, however. There is little sign of significant follow-through EUR demand developing and EURCAD resistance at 1.4510/15 continues to curb EUR gains."

Above image courtesy of Scotiabank. Set up a daily rate alert email to track your exchange rate OR set an alert for when your ideal exchange rate is triggered ➡ find out more.

Turning to the headline Dollar to Canadian Dollar conversion (USDCAD), the Scotiabank analyst notes further advances are possible from here:

"USDCAD’s broader uptrend remains intact and trend signals remain bullishly aligned for the USD across the short-, medium and long-term DMI studies."

Although the Dollar's near-term momentum has faded somewhat (the pair peaked at 1.3784 last week but has returned to 1.3700), Osborne says further USD gains are likely moving forward.

"The bullish orientation of the trend momentum signals also suggests the USD will find firm support on minor dips (to the 1.3575/1.3600 range) in the short run," he notes.

Above image courtesy of Scotiabank. Set up a daily rate alert email to track your exchange rate OR set an alert for when your ideal exchange rate is triggered ➡ find out more.

The Canadian Dollar experienced a setback Tuesday following the release of data that showed inflation in Canada was slowing faster than economists expected.

Canadian CPI inflation rose 3.8% year-on-year in September, said Statistics Canada, which makes for a sharp decrease from 4.0% in August and was below expectations for a reading of 4.0%. The month-on-month change stood at -0.1%, which was below expectations for 0.1% and 0.4% recorded in August.

Meanwhile, Core CPI was down 0.1% m/m in August (2.8% y/y), while the trimmed CPI measure was at 3.7% y/y, below the 3.8% expected by markets and 3.9% previously.

"With activity in the economy stalling in Q2 and Q3, excess demand appears to be diminishing, suggesting that inflation should continue to decelerate in the quarters ahead without the need for further interest rate hikes," says Andrew Grantham, an economist at Canadian Imperial Bank of Commerce (CIBC).

Such a fundamental development from the Bank of Canada could deny CAD the material rate support it requires to restart any uptrend with gusto.