GBP/CAD Week Ahead Forecast: Buoyant in 1.7429 to 1.7550 Range

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The Pound to Canadian dollar exchange rate has consolidated its second quarter gains but it remains biased to the upside and the author’s model suggests it could trade buoyantly in a 1.7429 to 1.7550 range this week.

GBP/CAD steadied around one-month lows toward the end of last week as Sterling drew a line under its early August’s losses and stock markets rebounded amid an improvement in global market risk appetite.

The improved global market backdrop and concurrent softening of the US Dollar have also weighed on the Loonie, helping GBP/CAD arrest its early August decline and inviting some further consolidation.

“GBP’s break above long-term trend resistance (now support at 1.7300) suggests corrective dips for the pound remain an attractive technical buy,” said Shaun Osbourne, chief FX strategist at Scotiabank.

Above: Pound to Canadian Dollar rate shown at daily intervals with Fibonacci retracements of April rally and 200-day moving average at 1.7216 (black line) indicating possible areas of technical support, while 50-day average (blue line) denotes possible resistance. 

“Per recent comments, short-term counter-trend corrections into the 1.7350/1.7450 range should be well-supported,” Osbourne added in an early August review of the Canadian dollar charts.

The author’s model suggests GBP/CAD is likely to trade buoyantly in a rough 1.7429 to 1.7550 range for the most part this week but it will be sensitive to the trajectory of the US dollar and a deluge of UK economic data.

The most favourable combination of data outcomes would include signs of ongoing resilience in the labour market on Tuesday, a further softening of inflation on both sides of the Atlantic, and a further extension of the first quarter’s dead cat bounce in UK GDP when data for June are released on Thursday.

Any further softening of US inflation for July on Wednesday would likely weigh on the US Dollar and the Canadian Dollar, in turn supporting GBP/CAD, which could also benefit from UK inflation data out on Wednesday as well as UK GDP data for June on Thursday, and retail sales figures for July on Friday.

“The GDP report is expected to reveal that the economy continued to rebound strongly in Q2 for the second consecutive quarter,” MUFG analysts said in a Friday research briefing.

Consensus suggests UK inflation crept back up to 2.3% in July, from 2% previously, which could support GBP/CAD if it leads markets to infer that interest rates will remain higher for longer than otherwise in the UK.

Meanwhile, GDP is seen rising 0.1% for June on Thursday, and retail sales are seen rising 0.6% for July. These data could also lend support to the higher for longer narrative, and buoy GBP/CAD in turn.

Any renewed gains this week would push GBP/CAD back in the direction of fair value up around 1.7646. This estimate is derived from the author’s fair value model, which uses inflation, interest rates and the cross-currency differentials between both to estimate where currencies should trade as inflation rises and falls.

Above: Quantitative model estimates of possible ranges for the week. Source: Pound Sterling Live.