Canadian dollar: CAD halts recent declines, but British pound vs CAD exchange rate is down quarter of a percent

Modified: Monday, 10 March 2014 22:21 GMT
Written by: Gary Howes

Canadian dollar exchange rates (CAD) are today stuck in a sideways movement with only the British pound losing any amount of significant ground to its Canadian counterpart. We consider the latest forecasts for the CAD ahead of next week's BoC meeting.

CAD dollar exchange rates today

The pound sterling to Canadian dollar exchange rate (GBP/CAD) is 0.25 pct lower on a day-to-day basis at 1.7860.
The euro to Canadian dollar exchange rate (EUR/CAD) is unchanged on last night at 1.4877.
The US dollar to Canadian dollar exchange rate (USD/CAD) is unchanged at 1.0930.

Note: Our CAD quotes are taken from the wholesale spot markets. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.

Canadian dollar exchange rate action over the past 24 hours

"Price action in USDCAD this morning in London was a lot like moving sideways in front of a target, but not moving towards the target. That is how the pair feels in relation to 1.100 at the moment," notes Stephen Gallo at BMO Capital.

In terms of aggressive topside appetite, the degree of fatigue in the pair seems have become more and more apparent in the price action following the stab at the 1.0991 high yesterday.

According to Gallo this suggests that the bulk of downside pressure in USDCAD, GBPCAD and EURCAD has probably been modest profit-taking. We’ve been expecting this to slow the rise in USDCAD in front of the BoC next week, "the difficulty now is picking a decent catalyst for more upside in the pair."

Outlook for pound sterling vs Canadian dollar

The pound sterling (GBP) is currently enjoying an extended period of demand which will likely keep the pound sterling vs Canadian dollar exchange rate supported.

"We expect BoE hikes by August, and this is still not fully priced. The key variable is the unemployment rate, which is expected to hit the 7% threshold in Q1 and firmly breach by Q2. There are strong inflows into UK equity, overwhelming the negative impact from outflows," says a forex forecast note issued by Nomura today.

Nevertheless, the short-term picture for GBP/CAD has deteriorated somewhat.

The pound touched a 4 year high against the Canadian dollar yesterday morning, but suffered a sharp fall of around 2 cents against the loonie in the afternoon. The retracement seems to be largely due to concerns the pace of the CAD sell-off may have been slightly too fast.

"It is likely the Canadian dollar will begin weakening again soon, because recent poor economic data and dovish comments from the Bank of Canada are likely to begin weighing again before too long. However, the pace of sterling’s gains against the loonie may be less dramatic in future. For today, we expect sideways trading," says Sasha Nugent at Caxton FX.

Outlook for Canadian dollar exchange rates today

"Weak inflation and growth means that the bias in rates is to the downside. This is largely priced, however. Central bank flow seem to be weakening, and private inflows appear soft," say Nomura.

Stephen Gallo says the CAD's outlook rests on the BoC meeting due next week:

"What we think the USDCAD market doesn’t really know a this juncture is whether or not it’s actually worth it to substantially cover short CAD ahead of the BoC next week. This is probably why we’ve observed a mix of profit taking in USDCAD with some decent bids in place on the downside at the same time.

"The perception that the market has of Poloz wanting a weaker CAD means next week’s statement could be the clear impetus everyone is hoping for to bring us through 1.100. For today, we expect more modest CAD profit taking to be in place between 1.096 and 1.100, along with the aforementioned support in USDCAD on the downside."

Camilla Sutton at Scotiabank has the following to say regarding the outlook for the US dollar to Canadian dollar rate:

"Currencies tend to overshoot and the USDCAD uptrend is strong with no clear technical warnings. Accordingly even as strong resistance at 1.1000 approaches we favour trading with the trend than trying to pick a top.

"We expect USDCAD to shift higher over the next six months and to stabilise in the second half of the year. Near‐term CAD weakness is driven by a dovish BoC, uneven economic data and bearish sentiment; while the stabilisation in the second half of 2014 comes from the powerful positive combination for the Canadian export sector of a weak CAD in the midst of a US economic recovery; as well as an easing in the uncertainty over the Canadian oil sector."