Image © Adobe Images
Pound rebuilding momentum against the Canadian Dollar.
The British Pound's uptrend against the Canadian Dollar is rebuilding some steam after a period of consolidation, raising our confidence that the next targets worth striving for are to the upside.
The Pound to Canadian Dollar exchange rate (GBP/CAD) is trending higher in the short term, helped by the nine-day exponential moving average (EMA), which is pointing higher and supporting brief spells of weakness:
Above: GBP/CAD at daily intervals.
As the chart shows, there is some graphical horizontal resistance just ahead at 1.8526, which could frustrate the advance and compress price action in the coming hours.
However, given the healthy state of momentum indicators, there is little reason to imagine this level being too much of a major obstacle. In addition to the nine-day EMA, momentum as per the Relative Strength Index (RSI) (in the lower panel) is positive, with a reading of 55 and an upward slant.
Beyond 1.8526 is the round figure of 1.86, ahead of an eventual target of 1.8779, the 2025 high.
Investor sentiment is relatively buoyant as we approach May, with the alarm of the April 02 tariff announcements giving way to a more nuanced assessment that allowed traders to pare the excesses of that reactionary trade.
Given the CAD's position in the trade war spotlight, it is understandable that it benefited from a retrenchment in trade war fears, pushing GBP/CAD back to 1.80 in the process.
Yet, the pullback looks to be just that: a pullback in the broader trend and not a turn in the trend, consistent with the resumption of the higher trend we are witnessing at the time of writing.
It's also worth remembering that the GBP is also a beneficiary of supportive global sentiment, and this has limited GBP/CAD downside.
The key event to watch in the week ahead will be the Canadian election, although we don't forecast any significant currency reactions to the result.
"Relative to other major currencies, implied volatility in the dollar-Canada pair looks well-contained ahead of Monday’s election. Mark Carney’s Liberals are the clear front-runners in a race that has turned into a referendum on Canada’s relationship with the United States, but investors are unlikely to react with hostility if Pierre Poilievre’s Conservatives – who have promised larger tax cuts and more deregulation – somehow emerge victorious," explains Karl Schamotta, FX strategist at Corpay.
The polls have nevertheless tightened of late, and the outcome should provide some interest to political enthusiasts, but from a markets perspective, the close economic policy ambitions of the two parties make for ongoing continuity.
This means CAD will remain more interested in U.S. politics than domestic politics.
Risks to CAD include a U.S. recession owing to Trump's tariffs that will raise inflation and could even lead to shortages in U.S. shops.
According to data, since the U.S. raised levies on China to 145% in early April, cargo shipments have plummeted, perhaps by as much as 60%, according to one estimate.
This suggests the real impact of tariffs are about to be felt by Americans, and this poses significant downside risks in the domestic data.
A slowdown in the U.S. would materially impact Canada, which remains highly integrated with the U.S. economy, even if Canadians have realised the risks of this tight integration of late.
Risks to the U.S. are therefore risks to CAD, and consistent with the GBP/CAD upside thesis.