- GBP/CAD retreats from top of range as recovery wanes.

- Initial support at 1.7240 after rejection by 1.78 resistance.

- Relative pace of GBP/USD and CAD/USD moves is key.

- GBP/USD and CAD/USD ranges tilt GBP/CAD sideways.

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- GBP/CAD spot at time of writing: 1.7525

- Bank transfer rates (indicative): 1.6880-1.7002

- FX specialist rates (indicative): 1.7230-1.7335 >> Get your quote now

The Pound-to-Canadian Dollar exchange rate rose nearly one percent last week but was rejected by the top of its multi-year range in the process and finds itself back at 1.7516 at the start of a new week

Pound Sterling put in a resilient performance last week that enabled it to close higher for the period against all major rivals other than the Japanese Yen on Friday, although its failure to complete an attempted retest of the top of its post-referendum range could leave the GBP/CAD exchange rate vulnerable to a correction lower over the coming days.

More so given the Loonie appears increasingly desensitised to the ongoing decline in global oil prices. Oil is again under pressure on Monday with WTI and Brent crude benchmarks extending losses. According to Richard Perry, analyst at Hantec Markets, the declines in oil are a result of the "massive glut of supply and ongoing bearish outlook, with WTI trading at levels not seen since 1999 this morning."

While we are not seeing the Canadian Dollar necessarily slump on oil markets dynamics we would say they are adding a significant cap to any upside potential. Indeed, if we look at the CAD's commodity dollar peers such as the New Zealand and Australian Dollars, we note both are outperforming notable.

The Canadian Dollar could be missing out on some recovery potential here, and we would expect this to remain the case until oil prices find their feet once more, something that is unlikely in the current economic environment.

"Selling into near term strength remains the way to play WTI," says Perry.

"Oil prices have hit a 20-year low this morning, with a clear distinction between US crude and Brent crude forming as stockpiles fill up. With a huge surplus in crude products filling inventories on land, there is a clear benefit to those producers whom are able to put their oil out to sea. Unfortunately, the lack of demand and landlocked nature of production in the US and Canada has already started to provide negative prices across a number of crude products in North America. With the insufficient OPEC+ production cut of 9.7m bpd only kicking in at the start of May, the huge oversupply issue looks unlikely to go away anytime soon," says Joshua Mahony, Senior Market analyst at IG.

WTI crude oil futures prices fell -6.7% on Friday while Brent crude dropped -8.4%, but the Canadian Dollar rose against every last one of its major rivals on Friday after suffering punishing losses during the opening days of last week.

Crumbling oil prices appeared to play a role in last week's early losses for the Loonie while the Canadian currency was also weighed down on Wednesday when the Bank of Canada (BoC) expanded its quantitative easing programme, although it's since made progress against Sterling as well as the U.S. Dollar, which has left it appearing poised for more gains over both currencies.

Above: Pound-Canadian Dollar rate shown at daily intervals, supported by moving averages but rejected by top of range.

"GBP/CAD remains range bound but looks slightly better bid above the 40-day MA (1.7240) which held last week’s dip in the GBP," says Juan Manuel Herrera, a strategist at Scotiabank, in a research note early last week. "We are not certain that the GBP can break out of the range at this point but we think the technical stars are aligning to suggest that the GBP could retest strong resistance around 1.78 again—the range ceiling in effect."

Herrera said last Monday that "trend strength signals are tilting a little more GBPsupportive" and that the stars were aligning in favour of a retest of the 1.78 handle near the top of Sterling's 2020 and post-Brexit referendum range. The above daily chart shows Sterling did then take a concerted run at the 1.78 handle, although it failed to keep up the momentum and was in retreat back toward the cluster of moving averages near 1.7240 by Friday.

Exactly where the exchange rate heads next will depend on the relative pace of price action in the GBP/USD rate and CAD/USD rate, given the Pound-Canadian Dollar rate is simply the sum of the former over the latter. May fundamental analysts look for a recovery of the U.S. Dollar over the coming days and weeks, relative to all major rivals, while Scotiabank's Herrera doubts there's much upside to the GBP/USD rate.

Above: Pound-Canadian Dollar rate shown at weekly intervals, with Fibonacci retracements of 2016 downtrend marked out.

A lack of GBP/USD upside and plenty of prospective downside puts the onus on CAD/USD or USD/CAD to avert a further decline in the Pound-Canadian Dollar rate. USD/CAD made progress last week in pulling back from new millenium highs and a continued descent lower would spell trouble for the Pound-Canadian Dollar rate, especially if it's accompanied by GBP/USD losses, but local analysts see the exchange rate mired in a low volatility range-trade.

"Dollar/CAD’s decline was made worse by a bearish NY close all the way back down below the 1.4100-1.4120 resistance band we introduced yesterday," says Eric Bregar, head of FX strategy at Exchange Bank of Canada. "So where does USDCAD go from here? Unfortunately, nowhere near term in our opinion. The market has pretty much respected the 1.3900-1.4200 range we predicted in late March (on a closing basis) and there’s nothing to suggest on the charts that we break out of that price range for now."

Bregar says Wednesday's surge, which captured on the chart below, has given the USD/CAD rate a renewed but mild upside bias although he expects it to remain sandwhiched between 1.39 and the top of a range that could extend all the way up to 1.4250. The Scotiabank team, meanwhile, tip a USD/CAD rate range of 1.3875-to-1.42 for the week ahead. Taken together these forecasts point to a sideways tracking Pound-Canadian Dollar rate this week.

Above: USD/CAD rate shown at daily intervals, descending from near new millenium highs as CAD recovers footing.

"We think there is little point in trying to attribute some hard fundamental value to currencies at the moment, given broadly similar challenges and policy responses facing the major economies and what remains a fluid, uncertain backdrop. Note that the CAD, like other currencies, is not correlating particularly well with any of the major variables we track at the moment. We do think, however, that the broader risk backdrop will continue to influence the overall tone of the USD and high beta currencies in the short run," says Shaun Osborne, chief FX strategist at Scotiabank.

Sterling and the Canadian Dollar ended last week on the offensive against the greenback, with the Pound lagging the Loonie in that upward move hence the modest decline in the Pound-Canadian Dollar rate, as risk assets rallied in response to a strong performance by remdesivir, an antiviral drug produced by Gilead Sciences, in clinical trials ran by The University of Chicago Medicine. That stoked optimism about a lessening of the human cost of the coronavirus at a point when daily infection numbers are increasingly confirming that a peak has been reached for outbreaks in many major economies.

Whether or not this rediscovered risk appetite remains unfettered in the week ahead will be key to the trajectory of the U.S. Dollar while the GBP/USD, CAD/USD and GBP/CAD rates could themselves be heavily influenced up ahead by the relative pace of Canadian and British progress in reopening their economies and allowing a return to normal life. And on that score, neither Canadian nor British lawmakers are even close to lifting the 'lockdown' of people and economies, although Washington and some U.S. states are increasingly taking steps toward this end which could matter for the U.S. Dollar up ahead.

Above: USD/CAD rate shown at monthly intervals, descending from near new millenium highs as CAD recovers footing.