Temporary working capital

Supported near 1.7450 but tiring above 1.7550

– GBP / CAD trading between 1.7450 and 1.7550
– Supported by the strength of the USD, softening the CAD
– The post-election recovery of the CAD, a risk for the GBP
– Fed decision could raise GBP / CAD afterwards

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  • GBP / CAD reference rate at publication:
  • Point: 1.7545
  • Bank transfer rate (indicative guide): 1.6930-1.7054
  • Specialist money transfer rate (indicative): 1.7387-1.7450
  • More information on obtaining specialized rates, here
  • Set up an exchange rate alert, here

The pound sterling exchange rate against the Canadian dollar has settled in a narrow trading range of 1.7450 to 1.7550, but may underline both of these limits in the coming days as the loonie digests the results local elections.

The British Pound meanwhile will navigate a Bank of England policy decision and all currencies will face the next steps in Federal Reserve monetary policy.

The British pound entered the new week above 1.75 against the Canadian dollar and could remain supported near that level if Scotiabank strategists are on the silver in their outlook for USD / CAD and GBP / USD, which should trade with a bias towards 1.29 and 1.36 respectively.

The pound rate against the Canadian dollar (GBP / CAD) closely mirrors the relative performance of the aforementioned two and would rise to 1.7546 this week under the above scenarios.

But the British Pound would face downside risks and could potentially fall below 1.74 in the event that Monday’s Canadian election causes the USD / CAD to drop to the lower end of the expected range.

“It is difficult to see spreads widening significantly in favor of the CAD at this point, as commodity prices could struggle if the risk environment deteriorates or if next week’s FOMC meeting supports l ‘idea that the Fed is getting closer to cut, “said Shaun Osborne, chief foreign exchange strategist at Scotiabank.

“Our forward range estimate for the coming week suggests an upside risk for the US dollar towards 1.29 while the downside potential is limited in the middle of 1.25s,” he adds.

Canadians went to the polls on Monday to vote in a snap election that pollsters say is too close to call either major party, with possible implications for a Canadian dollar that had been slightly under -performing among the major currencies since the vote was announced in mid-August.

GBPCAD four hours

Above: rate of the pound against the Canadian dollar shown at 4 hour intervals.

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The poll is the main event on the Canadian calendar this week, and although many analysts doubt it will have a large or long-term impact on the loonie, no matter how the electorate shrinks.

Some have observed a creeping cost to the Canadian dollar in the form of a “risk premium” that appears to have been built into the Canadian dollar since the announcement of the vote.

“Based on our short-term fair value model (which includes credit spreads, relative equity performance, risk sentiment, and commodity factors as variables), USD / CAD is currently overvalued by 2 % “, says Francesco Pesole, strategist at ING.

“Barring the scenario of a suspended parliament, political uncertainty in Canada should eventually dissipate, helping the CAD to realign itself to its near-term fair value,” Pesole said.

To the extent that this haircut is tied to the election, the vote itself could present a risk to the GBP / CAD in the event that the outcome results in the reduction of the haircut or risk premium over the USD / CAD.

While this may require one party or another to win a working majority in parliament, there are few experts or pollsters who seriously consider the idea.

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“The FOMC will release its economic outlook, which is likely a bit shaken in the near term, but full of confidence both a muted supply shock to prices and an improving labor market, as we move forward. ‘in 2022. It could even move forward. some of the rate hikes in the future, ”said Avery Shenfeld, chief US economist at CIBC Capital Markets.

As certainty emerges around the election outcome, the attention of the Canadian dollar could quickly shift to Wednesday’s Federal Reserve (Fed) decision and accompanying economic forecast, and this is a upside risk for USD / CAD which could prove favorable to GBP / CAD given their positive correlations.

The Fed is expected to widely brief the market on talks about ending its $ 120 billion-per-month quantitative easing program, but many economists, including those at CIBC, ING and Scotiabank, also suggest that his new forecast could point to a faster pace of US interest. the rate increases in 2023 compared to what was suggested in June.

This is something that could act like a steroid for the dollar and push up the USD / CAD.

CAD Daily Exchange Rates Table

Above: Rate of the pound against the Canadian dollar shown at daily intervals alongside the USD / CAD.

“Any change in median DOTs to imply an expectation of an earlier and / or faster rate hike will result in a stronger dollar given the importance of short-term yield spreads. some repeat sales in USD, ”says Derek Halpenny, research manager, global markets EMEA and international stocks at MUFG.

Beyond Wednesday, sterling’s attention will shift to the IHS Markit PMI service and manufacturing sector surveys on Thursday, just hours before the Bank of England’s latest monetary policy decision at 12:00 p.m. London time, while the loonie will focus on Thursday’s retail trade. sales figures.

“We expect the monthly retail (merchandise) sales report in Canada to show weaker sales in July and August,” said Nathan Janzen, senior economist at RBC Capital Markets.

“We expect Canadian retail sales to decline 0.5% in July, lower than Statistics Canada’s preliminary estimate for a decline of 1.7%. Our tracking of card spending shows another drop of around 1.5% in August, ”he adds.

Any suggestion by Statistics Canada this week that sales contract again in August would risk bolstering market perceptions of a Canadian economy that likely beat expectations in the third quarter, although that doesn’t necessarily do much for the future. GBP / CAD as data last Friday showed UK retail sales also fell for a second consecutive month in August.

“Market participants will be looking closely at the updated policy communication from next week’s MPC meeting for any signals that the BoE is approaching a rate hike. However, we believe there is a greater risk of disappointment that could trigger a temporary downward correction for the GBP, ”said MUFG’s Halpenny, citing recent UK economic data.

GBP CAD weekly

Above: rate of the pound against the Canadian dollar shown at weekly intervals with major moving averages.

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