The UK pound (GBP) to Canadian dollar (CAD), referred to as the ‘Loonie’, is a widely traded minor currency pair. It is considered a minor or cross pair as it is traded directly without converting to US dollars. In this pair the GBP is the base currency and the CAD is the quote. At the current rate of 1.695 it would take 1.695 CAD to buy one GBP.
The GBP to CAD forecast is heavily influenced by performance of the USD and Euro as both countries are heavily reliant on trade with their closest neighbours.
The currency pair is considered a risk-neutral pair, as both currencies tend to benefit from risk on sentiment. While both currencies are sensitive to risk, they have different weaknesses. The GBP is most affected by political and economic risk while CAD strength is heavily dependent on the world’s oil prices.
The current GBP to CAD FX rate of 1.706 has fallen below the 200-day moving average of 1.720 and cleared a significant resistance level, down over 4 per cent for May and from a pre-pandemic level of 1.80.
The CAD has been buoyed by rising oil prices and increasing demand for raw materials as the world’s major economies begin to open up. This plays well for the Canadian dollar in the short term as they are also further along in reopening the economy than the UK, which is lagging behind Europe due to locking down later than other countries.
GBP/CAD latest forex news
The pound to Canadian dollar forecast is influenced broadly by the US equities market as both currencies are considered risky in comparison to safe haven currencies such as the US dollar and Swiss Franc. The S&P 500 has continued to climb in the face of social upheaval and steady coronavirus numbers as the US government continues to announce giant stimulus packages, indicating an increasing risk appetite.
While both the GBP and CAD are influenced by overall risk sentiment they are not affected equally by the same factors and as such current news should favor the Canadian dollar. The CAD was battered by low oil prices and seems to be finding upward pressure as oil demand continues to increase and the price of WTI hovers around $35 USD per barrel. Improving economic output numbers from China also play in the CAD favor as they are a key supplier of raw materials to Chinese manufacturing.
Some Canadian provinces are in the latter stages of reopening their economies while the UK is just beginning to reopen. The vast geographic distances between Canadian cities make it more likely that any recovery setbacks in one region will not constrain the rest of the country.
While the CAD is dependent on the US market and oil prices for success, the pound is impacted more so by political and economic risks, both of which do not look positive currently. The pound continues to decline in the face of increasing concerns over a successful BREXIT deal with Europe.
The chief UK negotiator has recently commented that the chances of having a deal completed without an extension are slight. The impact severity of an inability to come to a resolution may be tempered if an extension is agreed upon soon as protocol allows for an extension before July 1. If no extension is agreed on before July 1, analysts believe investors should look for a drastic drop in the value of the pound.
The downward pressure will be intensified by ongoing infighting within the UK governing Conservative party as they continue to feud over the handling of Dominic Cummings, the chief advisor to Boris Johnson who admitted to breaking lock down regulations.
GBP/CAD analysis and sentiment
The current GBP to CAD trend leans in favor of the CAD. The ‘Loonie’ continues to strengthen with world oil markets. Most analysts feel that in the GBP vs CAD forecast the CAD will benefit more from increasing risk tolerance than the UK, which is embroiled in political turbulence and continues to be battered by coronavirus.
The recent social upheaval in the US should be monitored for any increase in intensity as the US is Canada’s largest trading partner and any prolonged disruption could compound the economic contraction in the US initially caused by coronavirus and stall the upward trajectory of the Canadian dollar.
Both countries should be monitored for further stimulus announcements and key economic data releases. While in normal times a country is bolstered by positive information, in this recession markets react to news that is less bad than expected or major commitments from governments. The major factor affecting the GBP/CAD outlook is the ability of the global trade to continue rebounding while avoiding a major second wave pandemic.
GBP/CAD: Buy or Sell?
The short-term British pound to Canadian dollar forecast is a Sell as the Canadian economy continues to strengthen on the back of rising oil prices and demand for commodities.
Traders should be mindful of this GBP/CAD prediction and watch for key Canadian economic data releases scheduled for late in the week. While it is widely believed that the Canadian economy has contracted less sharply than anticipated an unexpected negative reversal could decrease the upward pressure on the ‘Loonie’.
Both currencies could be adversely affected by the current social instability in the US, with the CAD likely to suffer more substantially than the GBP. These are ongoing situations which are evolving. As with most FX pairs currently, any major national setbacks in the recovery from the pandemic could cause either currency to drop quickly.
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