Currency Forecast - Sterling Vs. Canadian Dollar 16th December 2008

Sterling's status as "pariah" currency has seen it decline sharply over the last few weeks, hitting new all time lows against the Euro and six year lows against the resurgent US dollar.  Drastic interest rate cuts mean that the Bank of England rate is now down to 2%, only just above the 1.5% Bank of Canada rate.  Sterling's yield advantage was reduced after the 1% cut by the Bank of England on December 4th, with Bank of Canada cutting by a lesser 0.75% on December 9th.

Currency Forecast - Sterling Vs. Canadian Dollar 17th November 2008

Sterling's severe weakness has seen the GBP/CAD rate slump to new fifteen year lows in the last week.  The last time we traded at these levels was in 1993 shortly after the ERM debacle in which the pound was forced out of the exchange rate mechanism.  Grim comments from the Bank of England Wednesday have helped push sterling over the precipice.  The recent 1.5% interest rate cut had been seen as a possible one off move, or to have at the very least put the prospect of further rate cuts on the back burner.  However, in the last few days the markets have started factoring in further cuts in the near future, triggering a further bout of selling.

Currency Forecast - Sterling Vs. Canadian Dollar 29th October 2008

  While sterling has been plummeting against the US dollar, the Sterling/Canadian rate has been extremely volatile on an intra-day basis, but remained broadly level since a week ago.  The weakness in the Canadian currency |(relative the its US counterpart) can be explained by two primary factors.  Firstly the general "flight to safety" which has seen funds pour out of smaller economies and into the US dollar, driving it sharply higher.  Secondly, crude oil prices have plunged over the last few weeks as investors start to price in the prospect of a global recession, which would dampen demand for energy.  Canada's economy is reliant on oil and other commodity exports.  Manufactured exports have also been on the decline.

Currency Forecast - Sterling Vs. Canadian Dollar 17th October 2008

The Canadian dollar has been falling sharply in recent days, with weak oil prices and the prospect of a US recession weighing on the currency.  Oil is a key export for Canada, and is currently hitting the lowest levels in over a year as traders sell the commodity in anticipation of lower demand as the world economy slows.

  Bank of Canada are making an interest rate announcement on Tuesday 21st October, another factor holding off buyers of the currency (interest rate cuts usually weaken a currency).  The snap general election this week resulted in a strong minority for the conservatives, which had little net impact on the Canadian dollar.

Currency Forecast - Sterling Vs. Canadian Dollar 6th October 2008

The Canadian dollar suffered its largest weekly fall in 38 years against its US counterpart.  Weak economic data out of the US (including the worst job losses in over 5 years in September) has cast further gloom over the wider economy, despite the passing of the $700bn bailout package on Friday.  Canada's largest trading partner is the US, making CAD highly vulnerable to the US economic outlook.  Weakness in commodity prices, in particular oil is also weighing on sentiment toward CAD. 

Currency Forecast - Sterling Vs. Canadian Dollar 1st October 2008

The Canadian dollar is rising sharply along with its US counterpart following the failure of the US financial bailout plan.  The initial announcement of the "Paulson plan" was negative for the US dollar since it involved increasing the national debt sharply, making dollars a riskier asset to hold in the eyes of foreign investors, who sold the currency in reponse.  While the collapse of the plan caused panic in the wider markets, the dollar was undecided on direction as traders balanced the dire economic consequences against the reduced threat (to the dollar) of devaluation.  In the last 36 hours however, markets have moved toward the view that a revised plan is likely to be approved quickly, which should water down the negative implications for the US currency while still achieving the goal of restoring financial stability.  This is a better scenario for the US dollar, which is now rising in anticipation, and dragging the Canadian dollar along with it.

Currency Forecast - Sterling Vs. Canadian Dollar 23rd September 2008

The Canadian dollar has weakened along with its US counterpart since the financial crisis emerged two weeks ago, but the Loonie as it's known has fared better than the greenback, supported by a rebound in oil and commodity prices.  While the US currency is now dogged by concerns over the huge bail out package proposed by the US Treasury (which will see US national debt rise by 6.6%), the Canadian currency is treading a balance between the fallout from the US (Canada's largest trading partner) and the benefit of the massive liquidity injection.

  The technical outlook for GBP/CAD is mixed.  We are trading back above the key 1.9000 level, but rejected an attack on 1.9500 last week.  A close below 1.90 would probably be a good signal to suggest further downside.  Meanwhile, we need a close above 1.95 to give a positive outlook.

Currency Forecast - Sterling Vs. Canadian Dollar 5th September 2008

Sterling has declined to the lowest level against the Canadian dollar in fifteen years this week, driven by negative sentiment toward the pound, combined with a decision by the Bank of Canada to keep interest rates on hold at 3% despite acknowledging that inflation and the economy are both weaker than previously projected.  Markets had been expecting some comment indicating a 0.25% rate cut in the pipeline, so the lack of any such hint from the central bank has prompted a rally in the currency as investors see the 3% yield as likely to remain steady in the near term.  With growth a mere 0.3% in the second quarter, and weak employment figures for July, many economists are surprised that the bank did not adopt a more dovish tone.

  Meanwhile, the Bank of England also kept interest rates on hold yesterday in a widely expected outcome.  Sentiment towards the pound remains very weak, not helped by frank economic comment over the weekend from Alistair Darling.

Currency Forecast - Sterling Vs. Canadian Dollar 22nd August 2008

  Sterling has fallen sharply over the last two weeks after a gloomy outlook on the UK economy from the Bank of England.  The minutes of the latest monetary policy meeting showed a three way split on the interest rate decision, with one member voting for a rise, one for a cut, and six for no change, leaving markets unclear as to the next move.  Given the overall tone of the quarterly inflation report, which focused more on the threat to growth than on inflation pressures, it seems that the market is starting to factor in a possible easing of rates into the end of 2008.  The pound has already retreated sharply against the Canadian currency, but this trend has accelerated in the last 48 hours as a rebound in oil prices helped CAD strengthen further, while sterling found some support against other currencies including the US dollar. 

Currency Forecast - Sterling Vs. Canadian Dollar 13th August 2008

Sterling is trading sharply lower today after the Bank of England slashed its growth forecasts and indicated that interest rates may be reduced in the months ahead.  Markets had been expecting governor Mervyn King to put more emphasis on inflation risks, but he leaned toward growth concerns after new data showed that unemployment rose by the most in nearly 16 years in July.  King said the UK economy is facing a "difficult and painful adjustment [that] cannot be avoided.  As a result, inflation is rising and growth is slowing." 

Currency Forecast - Sterling Vs. Canadian Dollar 28th July 2008

The Canadian dollar has been on the back foot over recent days as the price of oil drops back sharply, leaving the currencies of oil producing nations vulnerable.  Oil fell to a seven week low, which has a dual impact on CAD.  Lower oil means lower oil revenues, and in the longer term could help the inflation picture moderate, opening the field to a possible cut in interest rates.  The Bank of Canada surprised the markets back in June by not cutting interest rates as expected.  The next rate setting meeting is September 3rd.

Currency Forecast - Sterling Vs. Canadian Dollar 17th July 2008

The Bank of Canada Monetary Policy Report Update is due this afternoon.  Traders will be looking for any information within the statement that points toward the next move in interest rates.  The BoC was expected to cut rates in June but did not, leading to a short term rally in CAD.  The bank sated on Tuesday that inflation could exceed 4% next year for the first time since 2003, leading to increased expectations that rates may have to rise.  However, this was largely offset by falling yields in the US as traders scaled back expectations of rate hikes there.

Currency Forecast - Sterling Vs. Canadian Dollar 4th July 2008

"The fact that sterling is managing to tread water even after the shock BoC decision on June 10th is interesting, and possible an indication that we could see further gains for this exchange rate in the short term." - Monday 30th June update

Currency Forecast - Sterling Vs. Canadian Dollar 30th June 2008

Three weeks ago the Bank of Canada surprised the markets by holding interest rates steady at 3% instead of cutting rates to 2.75% as was widely expected.  The result was a sudden strengthening of the Canadian currency, driving the GBP/CAD exchange rate sharply lower.  Since then the market has been trading in a range between 1.9850 - 2.0200.  We are trading toward the top of this range today.  The fact that sterling is managing to tread water even after the shock BoC decision on June 10th is interesting, and possible an indication that we could see further gains for this exchange rate in the short term.  A close below 1.9850 (based on the interbank rate) would certainly be cause for concern however, so clients who are looking for further upside should consider trading if we break this level.

Currency Forecast - Sterling Vs. Canadian Dollar 16th June 2008

Bank of Canada were strongly expected to cut interest rates last week from 3% to 2.75%.  The markets had already priced in the move, which is partly responsible for the weakness in the Canadian currency over recent weeks.  However, the bank kept rates on hold, sending CAD over 1% higher within minutes of the announcement.  This ended the strong run for the GBP/CAD exchange rate, and sent the market back below the 2.0000 level.  The initial reaction had worn off by Friday, the market finding some composure from a low of 1.9850. 

  The focus this week will fall on the Bank of England minutes released on Wednesday.  These could give further clues to UK monetary policy in the coming months.

Currency Forecast - Sterling Vs. Canadian Dollar 6th June 2008

Weakness in the Canadian dollar has allowed sterling to make strong gains over the last few days.  After bouncing off technical support at 1.9300 the Canadian dollar came under pressure due to a reversal in oil prices.  The low in the GBP/CAD rate coincided with the high in oil prices around 22nd May.  Gold also reversed from the highs on May 22nd, adding further weight to this correlation.  If oil prices continue to fall, we could therefore see more upside in the GBP/CAD rate.

  As the Canadian economy slows, analysts are calling for a 0.25% when Bank of Canada meet on June 10th.  This could keep CAd on the back foot for the moment.  Clients should consider placing a limit order in the market to maximize the chances of achieving a favorable rate.

Currency Forecast - Sterling Vs. Canadian Dollar 27th May 2008

In our last report we maintained our negative outlook on the GBP/CAD rate, suggesting it would trade lower toward the technical support at 1.9315 - 1.9400.  We tested this level last week, making a new six month low before rebounding to end the week in positive territory.  CAD has been strengthening as oil prices continue to hit record levels, but sentiment toward the currency deteriorated last week as weak US data increased the chances of further interest rate cuts in Canada, which is reliant on the US for around 80% of its export trade.  The Canadian central bank lowered interest rates by 0.5% to 3% on April 22nd, and governor Mark Carnet has hinted at further rate cuts in the pipeline.  Most analysts expect another 0.25% cut in June.

Currency Forecast - Sterling Vs. Canadian Dollar 13th May 2008

Sterling drifted lower last week despite the Bank of England holding interest rates steady at 5%.  This only served to heighten speculation that a cut will come in June.  Meanwhile, strong commodity prices are helping the Canadian dollar, which strengthened towards a ten week high against sterling.  Brent crude oil futures traded at new highs close to $126 on Friday.

Currency Forecast - Sterling Vs. Canadian Dollar 6th May 2008

The Canadian dollar has strengthened on strong commodity prices over the last few days.  The market is approaching support at 1.9800.  The April low was just below here at 1.9720, still represents the last key support ahead of the 1.9350 lows set in February.

Currency Forecast - Sterling Vs. Canadian Dollar 16th April 2008

In our last report on 4th April, we noted the deteriorating technical outlook.  The rate has since dropped back toward the mid March lows, and a break below here would likely signal a move back toward the major support around 1.9350. 

Currency Forecast - Sterling Vs. Canadian Dollar 4th April 2008

  Sterling rose against most major currencies yesterday, with the exception of the Canadian dollar, which gained on a strong stock market performance and a rally in commodity prices.  Gold regained its poise after suffering sharp losses since mid March, and copper, wheat and other key materials also closed in positive territory.  Commodities account for nearly half of Canada's exports.

  Markets are keenly awaiting the Bank of England meeting next Thursday.  There's a strong chance of a 0.25% interest rate cut, but this is already largely priced in, and sterling has been making strong gains after having been deeply oversold recently.  

Currency Forecast - Sterling Vs. Canadian Dollar 27th March 2008

The Canadian dollar has been under pressure along with its US counterpart following further monetary easing in the US (interest rate now 2.25%) and a rate cut by Bank of Canada on March 4th.  The Canadian economy is highly exposed to any slowdown in the US, and this is more than offsetting a certain amount of Sterling weakness caused by fears over the health of the UK banking sector.

Currency Forecast - Sterling Vs. Canadian Dollar 18th March 2008

Sterling fell sharply against most currencies yesterday as news of JP Morgan buying the ailing Bear Stearns bank hit the market.  Fears of a systemic credit market meltdown were revived by the sudden and unpredictable collapse of Bear Stearns, prompting traders to sell the US dollar and also Sterling, because the UK economy is widely seen as being the second most vulnerable to credit market squeezes after the US, in large part due to a similar housing market and an excess of "sub prime" mortgage lending.  The GBP/CAD exchange rate was one of the few bright spots for the pound, trading relatively unchanged as traders sold both currencies in equal balance. 

  The Bank of England stepped in to provide short term liquidity in an operation that was heavily over-subscribed, further highlighting the desperation of UK banks who need to borrow in order to finance new and existing business.

Currency Forecast - Sterling Vs. Canadian Dollar 10th March 2008

  In last week's update we expressed "cautious optimism" for GBP/CAD after the exchange rate bounced from our key support level around 1.9400.  This development was further cemented by a stronger pound later in the week, which helped the rate creep up toward 2.0000.  This is the level we identified as resistance, not only because it was the February high, but also because it's a round number, making it a key psychological pivot for this market. 

Currency Forecast - Sterling Vs. Canadian Dollar 5th March 2008

  The Canadian dollar weakened yesterday after the central bank cut interest rates by 0.5%, bringing the benchmark lending rate to 3.5%.  Further cuts were suggested, pushing CAD toward the lower yielding group of currencies which also includes the US dollar.  Despite relatively strong economic fundamentals, the Canadian dollar has been largely supported lately because interest rates had remained stable.  However, a lower yield and worries that the economy will be hit by the US slowdown (Canada's largest trading partner) should keep the "loonie" under pressure.  Rallying gold prices helped to redress the balance, and the weakness of the British Pound means that any gains in the GBP/CAD rate have been slight.  If sterling can find some support, we could see further upside. 

Currency Forecast - Sterling Vs. Canadian Dollar 27th February 2008

Since our update last week the market has been ricocheting off some key levels, namely the big psychological resistance at 2.0000, and now we are testing the support just above 1.9400 once again.

  Speculation that the US Federal Reserve are set to cut interest rates again in March has caused severe US dollar weakness, which has helped CAD push through parity (1:1) against its US counterpart in the last few days.  The Canadian economy is heavily reliant on the US economic cycle as its largest trading partner, but unlike the US dollar, the Canadian currency is somewhat buffered by strong commodity prices.

Currency Forecast - Sterling Vs. Canadian Dollar 19th February 2008

Sterling is still on the back foot as new banking fears hit the news wires.  Possible asset write downs and the nationalization of Northern Rock are not helping the pound this week, though we are still managing to hold onto most of last week's gains.  The support at 1.9400 remains intact for now, but a close below this level would signal renewed downside, opening the way to the 2007 lows at 1.9000.

Currency Forecast - Sterling Vs. Canadian Dollar 14th February 2008

The governor of the Bank of England painted a gloomy picture of the UK economy for the year ahead at yesterday's quarterly inflation report.  Citing rising inflation and flat house prices, Mervyn King noted the weakness in the pound as a potential bright spot for exporters.

  Sterling's reaction to the report was a non-event, as fears over an economic slowdown were largely offset by the comments on inflation, which suggest the Bank will be limited in any further rate cuts, helping the pound to tread water or make modest gains against most other major currencies.

Currency Forecast - Sterling Vs. Canadian Dollar 21st January 2008

The Canadian dollar has been on the back foot over the last few weeks as fears of a US slowdown hit prospects for Canadian exports.  Over 70% of Canada's exports are to the US market, so any slowdown in the US could have a significant impact on Canadian GDP growth.  Another reason that the "loonie" is weak at present is the softness in commodity prices over the last month.  Being net exporters of oil, gold and other metals, Canada has benefited from the long term uptrend in commodity prices, and as a result has been the best performing currency of 2007, at one point rising above parity (1:1) against its US counterpart.

  Meanwhile, sterling has been falling against most major currencies over the last few weeks, but has made modest gains against CAD off the back of the correction in the loonie's appreciation rather than any merit of its own.  The big question from here is; "will the Canadian dollar's correction end in a surge to new highs, or will sterling continue to make gains?".

  It's certainly the case that sterling appears "over sold" against the Euro and US dollar, and we are now seeing some recovery against these currencies.  However, having already bounced 5% off the November lows, the GBP/CAD rate has already seen a correction, and falls of 10%+ against the Euro and US dollar also represent a substantial correction for CAD.  The long term trend for GBP/CAD is still down, and it would take a break above 2.0910 (December 2007 high, marked in purple on today's chart) to end the downtrend. 

Currency Forecast - Sterling Vs. Canadian Dollar 16th January 2008

In last week's update we tentatively suggested that further upside was possible since we had spent a few days consolidating near the recent highs.  This has proved the case, and the technical outlook would start to look better still if the market can manage a close above the key phycholigical 2.0000 level today.  We traded above here during the session yesterday, but failed to hold onto the gains. 

Currency Forecast - Sterling Vs. Canadian Dollar 11th January 2008

  Sterling took another bashing yesterday despite the Bank of England meeting resulting in no interest rate cut.  Opinion on the likelihood of a rate cut was hotly divided leading up to the decision, which saw sterling initially jump, but then sink back to new lows as traders re-focused on the February meeting.  Markets are wary of the pound while the prospects of an imminent rate cut still linger.

  Meanwhile, the Canadian dollar is one of the only currencies against which Sterling is actually holding its own this week.  A report on Wednesday showed that Canadian building permits declined much faster than expected, leading to weakness in the currency.  This has allowed sterling to effectively "tread water" against CAD this week, despite falling against most other major currencies.

  The GBP/CAD technical outlook is mixed.  The market remains in a long term downtrend, but we saw a positive reaction from 1.9400 in late December, and again last week.  Since last week's rally the market has been consolidating close to the highs, which could suggest the rally has further to go.  If the pound can gain some traction over the next few days, we could see some further upside.  Meanwhile, clients with CAD requirements should consider placing a stop order below 1.9400* to protect against renewed weakness.

Currency Forecast - Sterling Vs. Canadian Dollar 3rd January 2008

Sterling's dramatic slide has continued over the New Year break, driven by expectations of further interest rate cuts in early 2008.  December's unanimous decision to cut rates by 0.25% makes another cut likely, and recent moderation in inflation figures suggest room for further easing.  Weak data from the Chartered Institute of Purchasing and Supply also points towards a larger economic slowdown than previously thought, so tomorrow's service sector figures will be another important indicator for whether the MPC will cut interest rates at the January 10th meeting.

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