Canadian dollar-pound expected to hit higher levels as Bank of Canada big day looms

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– The GBP / CAD risk increases before the BoC decision.
– Eye range from 1.7250 to 1.75 in the big week for GBP, CAD.
– UK data at the center of the GBP as the BoC defines its action plans.

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  • GBP / CAD spot rate at time of writing: 1.7413
  • Bank transfer rate (indicative guide): 1.6805-1.6927
  • FX specialist suppliers (indicative guide): 1.7014-1.7293
  • More information on FX Specialists’ rates, here
  • Set an exchange rate alert, here

The exchange rate between the British Pound and the Canadian Dollar (GBP / CAD) rose at the opening of a week in which the dominant trading range could be seen moving higher as the British Pound sails in. a series of economic data and that the loonie is taking some time to Bank of Canada big day.

The British pound got off to a good start to the week as it rose against all the majors other than a handful of commodity currencies, although it had little trouble recovering previously lost ground against the Canadian dollar. , which sails through an action-packed national calendar amid a large US dollar. slowdown this week.

The Canadian dollar will have to take into account this week’s 2021 government budget and a very important monetary policy decision from the Bank of Canada (BoC) on Wednesday, where rate regulators are expected to make plans. to align the bank’s monetary policy with a changing economy.

Canada’s economic data over the past few months has been much stronger than the BoC or the markets had expected, lifting the country near the top of the ranking of major economies, while the BoC is generally seen to have organized the response. most aggressive to coronavirus. crisis of all comparable central banks.

This aggressive response has put the BoC on track to own more than half of the Canadian government bond market by the end of the year if its quantitative easing program continues at its current pace, a development that will continue. is undesirable for policy makers because of the negative impact it could have on “market functioning”.

This particular motivator may be underestimated by the Canadian dollar bulls, some of whom may have instead interpreted an impending cut in the BoC’s C $ 4 billion per week quantitative easing program as a demonstration of pedigree. “ hawkish ” and could therefore be disappointed. Wednesday at 3:00 p.m.

“Canadian surprise data has also overtaken the United States in recent weeks. However, it seems possible that a phase-down decision is accompanied by a reiteration that the economy still needs extra-ordinary political support and some messages on closing the output gap that clearly indicate that the economy is still in need of extra-ordinary political support. Rate hikes are still a long way off, ”says Shaun Osborne, chief currency strategist at Scotiabank, who sees the USD / CAD trading in a rough range of 1.24 to 1.26 this week.

GBP to CAD per day

Above: GBP / CAD at daily intervals with and USD / CAD (red).

A range of 1.24 to 1.26 for the USD / CAD is a trading band of 0.7936 to 0.8064 in Canadian dollar notation and a set of parameters suggesting a range of 1.7250 to 1.75 for the GBP / CAD this week.

The latter still closely reflects the net performance of GBP / USD and an inverted USD / CAD.

In the middle of the USD / CAD range above, the British pound would trade between 1.7250 and 1.75 against the Canadian dollar in the absence of a deviation from the main UK GBP / USD exchange rate of one. 1.38 to 1.40 trading band.

Recently, the GBP / CAD has mainly traded in a range of 1.72 to 1.74.

The GBP / CAD rate was trading around 1.7350 and in the lower half of that 1.7250 to 1.75 range on Monday ahead of Canada’s 2021 budget, which is expected to be unveiled late in the European afternoon, after which the UK economic data calendar comes to life. for the week.

Keep an eye out for UK inflation data on Wednesday and PMI data on Friday.

“We expect PMIs to rebound strongly in April as foreclosure restrictions were further relaxed. Otherwise, we believe CPI inflation fell from 0.4% year-on-year to 0.7% last month, while the unemployment rate held steady at 5.0% in February as the Absenteeism regime continued to absorb most of the impact on the third labor market. lockdown, ”said Melanie Debono and Kieran Tompkins to Capital economics.

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It may be very relevant that the good start to the week for the GBP / CAD and the underperformance of the Loonie, which was observed even against directly comparable commodity currencies like the Australian and New Zealand dollars, comes as rates rise. US dollar exchange rates return after three months of the greenback.

The loonie has benefited in recent months not only from strong economic data, which may be likely to subside as a third wave of infections, and resulting containment measures have spread across the country and economy, as it also benefited from an offer that was in part motivated by Canada. location on the doorstep of a stimulus-driven US economy.

Potentially for related reasons, the Canadian dollar is often observed outperforming other currencies or underperforming along with the US dollar.

“Despite the generally strong sentiment for commodity currencies and the rebound in oil, the CAD was the worst performing currency in the G10 after the dollar last week,” notes Francesco Pesole, strategist at ING.

“We suspect the Bank will not exceed consensus expectations given the worsening contagion situation in Canada and the not-so-rapid rollout of vaccination. This could leave CAD still vulnerable to the worsening history. national “, he adds.

GBP to CAD weekly

Above: GBP / CAD at weekly intervals with US dollar index (yellow) and USD / CAD (red).

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