• GBP/CAD looking for a footing near 2023 lows
• Key averages at 1.6015 & 1.6033 offer support
• UK data in focus as Canada calendar quietens

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The Pound to Canadian Dollar exchange rate has further pared its multi-month rally from September's all-time low in recent trade but could stabilise above nearby moving averages on the daily and weekly charts if official data continues to suggest a UK labour market in rude health this week.

Pound Sterling booked a third consecutive week of losses against a still-outperforming Canadian Dollar last Friday following a heavy fall that was inspired by official figures suggesting Canada's labour market experienced its strongest expansion since last February during the opening month of the year.

"The labor market data does nothing to dispel the view of overheating [ in the economy]. In addition to the surprisingly high number of new jobs created, wage growth remains above 4%," says John Velis, an FX strategist at BNY Mellon.

"The 4.5% y/y increase in wages for January is the lowest since July, but the BoC reckons that wage growth needs to get well under 4% to be commensurate with CPI at 2%," Velis writes in a Monday research briefing

Canada's Dollar outperformed on Friday but the 150k increase in employment was counterbalanced with a softening of wage growth so there is uncertainty over what it's likely to mean for the Bank of Canada (BoC) interest rate outlook. 

Above: Pound to Canadian Dollar rate shown at daily intervals with selected moving averages denoting possible areas of support and resistance. Click image for closer inspection. 

The BoC said last in January that its cash rate is likely to remain on hold at its current 4.25% level in the months ahead while the bank assesses the impact of that last year's increases have on the local economy, meaning last Friday's data might ultimately end up being overlooked by Canadian rate setters.

"There are limited data releases from Canada over the coming week—Housing Starts and Manufacturing Sales on Wednesday and Industrial Product Price data on Friday. The US data calendar is all about inflation," says Shaun Osborne, chief FX strategist at Scotiabank.

"There are a number of Fed policy makers with speaking engagements next week, including Harker, Williams, Mester and Bullard among others. Technical signals are mixed and provide conflicting clues for the week ahead," he adds in a Friday research briefing. 

While there is little by way of major appointment in the calendar for the Loonie this week, Tuesday's UK employment figures are likely to be influential for Sterling ahead of Wednesday's release of January inflation numbers. 

"Among those, tomorrow’s wages should be the most important release for the BoE's next policy moves," says Francesco Pesole, an FX strategist at ING. 

Above: Financial model-derived estimates of probable trading ranges for selected currency pairs this week. Source Pound Sterling Live. (If you are looking to protect or boost your international payment budget you could consider securing today's rate for use in the future, or set an order for your ideal rate when it is achieved, more information can be found here.)

Consensus or the average of professional forecaster estimates suggests UK wages grew at a modestly reduced annualised pace of 6.2% in the three months to the end of December, down from 6.4% previously, while both UK inflation rates are expected to have ebbed in January. 

The overall inflation rate is seen falling from 10.5% to 10.3% on Wednesday with the more important core inflation rate ebbing from 6.3% to 6.2%. 

GBP/CAD could benefit from upside surprises in either of these numbers but it would also likely be vulnerable this Tuesday and Wednesday if U.S. inflation or January retail sales figures come in stronger than expected. 

"Goods disinflation should have further to run. This is the message from the leading indicators (e.g., import prices, PMIs); recent sterling appreciation; and ongoing pressure on manufacturers to reduce high inventories via price discounts," says Konstantinos Venetis, a senior economist at TS Lombard. 

"Services inflation is still pointing up, however, against the backdrop of an unusually tight labour market. The vacancy-to-unemployment ratio remains elevated at over 90%; and nominal private sector regular pay growth is running at well over 7% YoY," Venetis writes in a research briefing last week. 

Above: Pound to Canadian Dollar rate shown at weekly intervals with selected moving averages denoting possible areas of support and resistance. Click image for closer inspection. To optimise the timing of international payments you could consider setting a free FX rate alert here.

The Pound to Canadian Dollar rate often demonstrates a negative correlation with the U.S. Dollar so any attempted recovery this week would potentially be undermined if Tuesday's U.S. inflation figures call into question the notion of inflation being in the midst of a decisive retreat. . 

U.S. inflation has eased in recent months, leading Federal Reserve rate setters to suggest with cautious optimism that a disinflation process is underway.

It would take time for such a process to lead inflation back to the 2% target, however, and there is risk of setbacks along the way that could lift expectations for interest rates and lead to a less supportive environment for many currencies including Sterling and GBP/CAD.

"A stronger than expected January CPI print would likely reinforce the recent strong economic data theme, pushing market pricing for upcoming rate hikes even higher," says Mazen Issa, a senior FX strategist at TD Securities.

"A positive CPI surprise would be a much bigger pain trade now that the broad USD has broken downtrend resistance. Breadth of the inflation numbers will also be important in this release," Issa writes in a Friday research briefing.