CAD weakness as oil prices fallAnd broader commodity dollar complex strugglesUSD/CAD tipped higher by ScotiabankGBP/CAD also seen higher in tandem

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The Pound to Canadian Dollar exchange rate could be set to make further gains amidst a more constructive technical setup and falling oil prices.

The Canadian Dollar has fallen alongside other 'commodity currencies' at the start of 2024, with a recent slide in oil prices being particularly relevant to Canada, one of the world's major oil exporters.

The Brent crude oil price was down 3.35% to $76.12/bbl, whilst WTI fell by 4.12% to $70.77/bbl following Saudi Arabia's decision to cut oil prices for buyers in all regions.

The Canadian Dollar's sensitivity to oil prices waxes and wanes, but the significance of the developments is broadly unsupportive from a fundamental perspective, adding to the sense that the start of 2024 might be a difficult one for this currency.

Indeed, Shaun Osborne, an analyst at Scotiabank, says he sees risks of the Canadian Dollar weakening "a little more in the near-term, at least".

Osborne observes the technical signals coming from the headline Dollar-Canadian Dollar exchange rate (USD/CAD) are advocating for further upside (CAD weakness):

"A high close for the USD last week—despite the hefty intraday swings in the USD Friday—adds emphasis to the bullish pattern of trade and supports the outlook for some additional, corrective gains in the USD in the next few weeks towards 1.34/1.35."

Osborne says USD/CAD gains through high/low resistance at 1.3390/00 will add to near-term bullish momentum.

Above: GBP/CAD (top) and USD/CAD at daily intervals. A further revival of USD/CAD can boost GBP/CAD.

Turning to the Pound-Canadian Dollar, USD/CAD upside can prove supportive, all else equal.

This is because Sterling has been the joint top performer of 2024 alongside the USD, which means any USD/CAD upside will almost certainly result in GBP/CAD upside should the GBP continue to keep pace with the USD.

The GBP/CAD daily chart confirms the exchange rate now resides above the 200-day moving average, which signposts upside is preferred over the medium-term.

Short-term gains (roughly the next one to two weeks) can extend to 1.7170, in line with the aforementioned upside scope in USD/CAD.

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For sure, the coming days can be prone to pullbacks as the recent rebound in GBP/CAD is pared, but any weakness is currently expected to be short-lived in nature.

The main data event of the week for this pair is Thursday's U.S. inflation release, which has the potential to move global markets and the Dollar.

A softer-than-expected reading would undermine the Dollar and boost the stragglers, including CAD.

For GBP/CAD specifically, Friday's GDP report can move the market if it deviates significantly from the headline 0.2% month-on-month increase for November, while the year-on-year rate is expected at 0.1%.

We are also keeping an eye on the appearance of Bank of England Governor Andrew Bailey in front of parliamentarians on Wednesday, where he could be asked about the outlook for interest rates.

Of particular interest will be whether Bailey continues to signal it is too soon to talk about interest rate cuts in light of last month's below-consensus inflation print.