GBP/CAD could remain suppressed beneath 1.6569 Downside likely limited without further rally in CADGBP/CAD may hold 1.63 & stabilise for short periodBoC survey, BoE speeches & CA job data in focus

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The Pound to Canadian Dollar rate slipped back toward its lowest since October 2019 early in the new week and could remain suppressed near to the round number of 1.63 handle over the coming days, with Sterling likely losing upward momentum on any approach of 1.65.

Sterling remained one of the worst performing major currencies for the week to Monday following remarks from Bank of England (BoE) Governor Andrew Bailey, which helped push GBP/CAD to just more than two year lows by last Tuesday.

But the Canadian Dollar's March rally against the U.S. Dollar also contributed to the recent slide in GBP/CAD and price action in USD/CAD will be important again this week for determining if Sterling sets a new low or begins to draw a line under its losses.

“USD/CAD levels are still above last week’s lows as markets try to sort out near-term directionality. From a factor perspective, crude prices appear to be consolidating for now while front-end CAD rates are outperforming,” says Bipan Rai, North American head of FX strategy at CIBC Capital Markets.

“This week doesn’t offer much in terms of breakout direction for the pair really with both the BoC and Fed well priced. Instead, keep an eye on crude prices as a clue. We continue to like near-term upside towards the 1.2700 mark,” Rai said in a Monday market commentary.

Above: GBP/CAD at daily intervals with Fibonacci retracements of February sell-off indicating possible areas of short-term technical resistance for Sterling, and shown alongside spread, or gap between 02-year UK and Canada government bond yields. Click image for closer inspection.

GBP/CAD tends to closely reflect the relative performance of Sterling and the Loonie when each is measured against the U.S. Dollar, and would likely rise from its recent low this week if USD/CAD climbs toward the 1.27 handle envisaged by CIBC’s Rai.

However, if the USD/CAD rate renews its recent leg downward and breaks to new lows beneath 1.2433 then it would likely see GBP/CAD coming under pressure anew and may see Sterling trading down to new multi-year lows.

“A rebound would only become a significant risk if price action delivered a decent, net USD gain this week. Rather, we think a brief consolidation in the USD is likely ahead of further losses,” says Shaun Osborne, chief FX strategist at Scotiabank.

“We note that 1) USDCAD remains below major trend support (now resistance) at 1.2590 2) Trend indicators remain aligned bearishly against the USD across medium/long term charts (making sustained rebounds very difficult for the USD) and 3) The monthly chart shows March dealing a major, negative below for the USD via a bearish outside range candle,” Osborne said on Friday.

USD/CAD itself may be sensitive this week to the details contained in the latest Bank of Canada (BoC) Business Outlook Survey set for release on Monday and will likely also be responsive on Wednesday when minutes of the March Federal Reserve (Fed) meeting are released.

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Wednesday’s minutes are expected to reveal the Fed’s plan for reducing the size of its $8.9 trillion balance sheet and would be an upside risk for USD/CAD if they point to a faster process than markets have envisaged, although it’s Friday’s employment report that is most directly relevant for the Canadian Dollar.

“With the Bank of Canada weighing how quickly to raise interest rates, all eyes will be on next week’s Business Outlook Survey and the March Canadian jobs report,” says Rannella Billy-Ochieng, an economist at RBC Capital Markets.

“Despite the availability of jobs, at 5.5%, the unemployment rate is not just below pre-pandemic levels, it’s the second lowest monthly rate on record dating back to the early 1970s. That will both limit the pace of future employment growth and add to higher wage pressures as businesses compete for a smaller pool of available workers. We look for the unemployment rate to hold at 5.5% in March,” Billy-Ochieng said on Friday.

In the meantime, the week ahead is devoid of major appointments Sterling in terms of economic data but does include speeches from BoE Governor Bailey, Deputy Governor Sir John Cunliffe and chief economist Huw Pill spread across Monday and Thursday.

Above: USD/CAD shown at daily intervals with Fibonacci retracements of October 2021 rally indicating possible areas of short-term technical support. Click image for closer inspection.