GBP/CAD Rate Week Ahead Forecast: CAD Losses Staunched

• GBP/CAD setup broadly constructive
• Although recent oil price rebound frustrates
• Potential for near-term weakness
• Ahead of resumption of uptrend

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The Canadian Dollar has been under pressure against the U.S. Dollar, British pound and Euro in 2024, although some of that weakness was staunched in the second half of last week by a pickup in crude oil prices.

Some resilience in CAD therefore curbs the recent uptrend in the Pound to Canadian Dollar exchange rate, although we look for any softness to be short-lived in nature.

A reading of the charts shows momentum remains in Sterling's camp, with the GBP/CAD pair trading above both the 100- and 200-day moving averages.

As such, we maintain a constructive view of the pair and would view pullbacks to be bought into.

That doesn't mean the coming days don't hold the potential for some further pullback near the 61.8% Fibonacci retracement of the late-2023 decline at 1.7072.

Interim support is at 1.7010, a level that can come into play on any further strength in oil prices.

Beyond the next several days or so, we remain constructive and favour a test of 1.7159 for the coming one to two weeks.

Above: GBPCAD at daily intervals with Fibonacci retracement levels and 200-day moving average annotated. Track GBP and CAD with your custom rate alerts. Set Up Here.

The calendar highlight of the coming week is the release of Canadian inflation numbers for December on Tuesday at 13:30 GMT, where the consensus looks for a reading of 3.3% year-on-year, up on November's 3.1%.

Should inflation undershoot, then the Canadian Dollar can come under pressure.

"This week's inflation releases leave SEK and CAD most vulnerable to downside pressures, in our view," says a weekly strategy note from Barclays.

Analysis from the bank finds that Canadian inflation momentum appears to have weakened, which means the market can ramp up its bets for Bank of Canada interest rate cuts from here.

This leaves CAD exposed to currencies belonging to central banks where rate cut expectations stay steady or are even reduced.

We have recently seen rate cut expectations decline for the UK and U.S. in a development that has ensured GBP and USD are the two top-performing currencies of the year.

Also of interest are Canadian retail sales, which are due for release Friday, with the market looking for 0% month-on-month for November.

Regarding the Pound side of the GBP/CAD equation, it is a very busy week ahead, with wage data, inflation and retail sales all up for release.

For a preview of these data and their implications for the Pound, please see here.