Image © Adobe Stock
A big advance by the Canadian Dollar invites a deeper setback for the Pound to Canadian Dollar exchange rate (GBP/CAD).
The Canadian Dollar jumped in value against the Pound, Euro and Dollar on Friday, with the gain being replicated against most G10 peers.
CAD strength is certainly notable as it advances to its highest level in nearly eight months against the Dollar at 1.36800.
This outperformance leaves the GBP/CAD on the back foot at 1.8537 at the start of the new month, and our Week Ahead Forecast anticipates further weakness over the span of the next five days.
Above: GBP/CAD at daily intervals.
Although there has been a deterioration in the GBP/CAD setup, some near-term mean reversion back to the nine-day exponential moving average (EMA) is highly possible through Monday and Tuesday, meaning we could edge higher towards 1.8576.
However, because the setup has turned more 'bearish' over recent sessions, there is a likelihood that the mean reversion higher will ultimately succumb to another leg lower. In short, a 'sell the rally' mentality is preferred.
Note that a graphical resistance at 1.8599 is located near the nine-day EMA, which reinforces this near-term forecast.
Interestingly, gains for CAD come despite a resumption in the 'Sell America' theme: we are seeing the USD fall through the start of June as President Donald Trump drops more tariffs (upping aluminium and steel tariffs) and accuses China of breaking a freshly minted trade agreement.
Typically, we would expect the CAD to weaken alongside its North American cousin, as has been the case this year.
CAD strength through this latest episode is interesting, leaving us cautious of a shift in trends that favours the Loonie.
However, if we are witnessing a temporary dislocation, then GBP/CAD can make up lost ground and rally as the 'Sell America' trade begins to weigh on Canada once more.
If this were the case, then we could see GBP/CAD move above 1.8599 again this week. For now, however, our preference is for the rebound to be shallow and for further weakness to ensue.
Above: BoC Governor Macklem. Image © Bank of Canada, Reproduced Under CC Licensing.
Looking at the calendar, the key domestic risk for CAD is the Bank of Canada's interest rate decision, scheduled for Wednesday, June 4, 2025, at 2:45 p.m. BST. A press conference with Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers will follow.
The market is poised for the central bank to hold interest rates, a firm indication that the Canadian Dollar might benefit in the coming months if other central banks opt to cut rates further.
"Rates are at the midpoint of neutral, inflation is above the top of the band, and uncertainty goes both ways. There is no reason for them to cut this week, in my opinion, and 25% is worth a fade in rates, despite the negative payoff ratio," says Brent Donnelly, analyst at Spectra Markets.
The market is presently priced for a 25% chance of a cut, meaning any decision to hold rates would likely result in a rise in the CAD.
"The Bank of Canada estimates neutral to be between 2.25% and 3.25%. The current policy rate is 2.75%, smack dab in the middle of that range. Meanwhile, Core CPI is 3.2% and Trim is 3.1%. Both those figures are above the top of the Bank of Canada’s target range. As a reminder, The Bank of Canada aims to keep inflation at the 2 per cent midpoint of an inflation-control range of 1 to 3 per cent," explains Donnelly.