GBP/CAD Week Ahead Forecast: Still Bullish

• GBP/CAD technicals suggest further upside
• But, Autumn Statement could see Nov. lows retested
• Sept. lows a major turning point: Scotiabank

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The Pound looks poised to trend higher against the Canadian Dollar, however a busy week of data and a key budget announcement promises the potential for volatility.

The Pound to Canadian Dollar exchange rate (GBP/CAD) recovered through October, and although the Pound has lost momentum right across the board this November, further upside in this cross is likely says one prominent analyst we follow.

"We think the late Sep low in the cross represents a major turning point; bullish price signals developed around the GBP’s sharp rebound from the 1.41 level (bullish weekly key reversal and monthly bull hammer)," says Shaun Osborne, Head of FX Strategy and Research at Scotiabank.

Above: GBP/CAD at daily intervals, showing the 2022 downtrend appears to have broken. To better time your payment requirements, consider setting a free FX rate alert here.

GBP/CAD has nevertheless retreated from the late-October highs near 1.58, but for Osborne not enough damage has been done to the technical charts to suggest a major reversal is likely.

"Gains have faltered about where we expected (retracement resistance at 1.5740) but we continue to feel that GBP gains beyond here are likely and will drive the cross towards the 1.60/1.65 range," he says in a weekly technical study.

From a fundamental perspective, it appears much of this week's price action will be driven by the GBP side of the equation, courtesy of the release of inflation and employment data, with Thursday's Autumn Statement likely to determine where the exchange rate ends the week.

UK Chancellor Jeremy Hunt lays out the government's latest tax and spending plans on Thursday as he attempts to fill a 'black hole' in the country's finances, estimated to be around £55BN.

"Attention turns to the UK with the budget announcement on 17th November. We continue to expect GBP under-performance against most of the non-USD G10 currencies going forward," says Derek Halpenny, Head of Research for Global Markets EMEA at MUFG.

"Tightening fiscal policy into a recession to weigh on GBP," he adds.

Some of the potential fiscal changes to look out for on Thursday include:

• Changes to capital gains tax
• Changes to the dividend allowance
• Changes to the top rate of income tax and lowering the top rate of tax threshold
• Freezing income tax thresholds (this would be the biggest revenue earner and hit to UK consumers)
• Freezing inheritance tax thresholds
• Scrapping social care cap
• Freezing the lifetime allowance
• Scrapping the pensions triple lock
• Changing pensions tax relief
• Changing the rules around the Money Purchase Annual Allowance (MPAA)

"In our view, shifting to overly tight policy would deepen the recession that the UK is likely to endure in 2023," says Andrew Goodwin, Chief UK Economist at Oxford Economics.

The market's reaction could therefore be one consistent with some GBP/CAD downside if the market judges Hunt's endeavour to balance the books has gone too far.

Look for the November low at 1.5168 to be tested if this is the case.

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Ahead of Thursday's budget the market digests wage and employment data (Tuesday at 7:00 GMT), with the market consensus looking for the Average Earnings Index, with bonuses included, to rise 6.0% in September.

The unemployment rate is expected to remain unchanged at 3.5% but job losses of 155K are expected to be reported for the three months to September.

Should the data disappoint, then the Pound would be expected to fall and GBP/AUD would probe lower levels.

Wednesday's CPI inflation reading is however expected to be of greater importance for GBP/NZD, given it has a direct bearing on the future of Bank of England interest rate decision-making.

Headline CPI inflation is forecast to report at 10.6% year-on-year for October, up on September's 10.1%.

The core CPI reading is seen at 6.4%, well ahead of the Bank of England's 2.0% target and consistent with further interest rate rises.

It remains difficult to predict how the Pound would react to either a stronger-than-expected or weaker-than-expected reading.

The long-running assumption is that hotter inflation is good for a currency in that it prompts the market to raise bets for further central bank interest rates rises.

But the UK economy is suffering a significant hit under surging inflation, therefore a weaker reading could benefit the Pound as it implies less economic damage ahead.

Look for a test of the October 28 high at 1.5814 ahead of fresh multi-month highs if the market gives a positive reaction to the week's data and fiscal event.