Market Forecast - Sterling Vs. Canadian Dollar 11/02/09
Sterling was well into recovery mode as January turned into February, rallying into the 1.80s last week as bank stocks rebounded and the government stepped up plans for a special bank to buy toxic debt from the distressed sector. Last week the Bank of England cut interest rates again in a widely expected move, pushing the UK base rate down another 0.5% to a record low of 1.0%, the same as in Canada. Usually a currency will weaken in response to monetary easing as investors look for higher returns elsewhere, but sentiment is now shifting, and traders are actually starting to believe that rate cuts will be passed on to the economy at last, and may actually help!
With oil prices languishing close to recent lows, CAD has been on the back foot against the resurgent pound. Hopefully the sterling recovery will continue, but one potential obstacle is the technical trend resistance just above 1.80. We've obviously run into this barrier in the last few days, and it would take a clear break above 1.8400 to open the way to more sustained gains. In the short term then, things are still up in the air, and we would suggest anyone with CAD requirements hedge at least half of the exposure here while the market is still trading over ten cents above the January lows.
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