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Stay bullish on the Pound against the Canadian Dollar in the coming week.
The Pound to Canadian Dollar exchange rate (GBP/CAD) is forecast to maintain a bullish setup in the coming days, even if Canada has avoided a new trade war flare-up.
Canada has staved off a fresh trade crisis with the USA after it binned a special digital sales tax that was designed to extract additional taxes from U.S. technology companies.
The U-turn follows Friday afternoon's threat from U.S. President Donald Trump that he would terminate trade negotiations in retaliation for the digital tax. He also threatened to impose fresh tariffs within a week.
"Rescinding the DST will allow the negotiations to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians," Finance Minister Francois-Philippe Champagne said.
The developments have been greeted by a firmer CAD, with the GBP/CAD dipping 0.20% on Monday to go to 1.8738 and USD/CAD going to 1.3680.
Above: GBP/CAD at daily intervals.
"USD/CAD fell by almost 0.3% following Canada's decision to rescind its digital services tax on multinational tech companies. As a result, Canadian Prime Minister Carney and President Trump have agreed to resume trade negotiations, aiming for a final deal by 21 July. Progress toward a US–Canada trade agreement will weigh on USD/CAD," says Samara Hammoud, FX Strategist at Commonwealth Bank.
Although GBP/CAD is softer at the start of the new week, the near-term outlook remains constructive and further gains are possible, even if a short-term retreat is allowed for. Note that the GBP/CAD broke to its highest level since June 2016 last week at 1.8832.
The pair resides above its major moving averages, but it has diverged quite a bit from its nine-day exponential moving average (currently at 1.8657).
Because exchange rates tend to mean-revert to this short-term measure of momentum, a pullback to this level is possible, particularly if there are growing hopes for a final settlement to U.S.-Canada trade tensions.
GBP/CAD is rising courtesy of the rise in GBP/USD, which confirms a decent linkage between CAD and USD. What this means is that for a more meaningful GBP/CAD pullback to materialise, we would probably need to see GBP/USD retreat.
This correlation owes itself to the close integration of the two North American economies, leaving them trading as a bloc, particularly against European currencies.
Also, the recent fall in oil prices appears to be weighing, serving as a reminder for major oil exporters like Canada, the price of oil matters. The above chart plots CAD/GBP against brent crude (lower panel).
The truce in the Iran-Israel conflict put an end to the recent rally in oil prices, and further retrenchment can continue to weigh on CAD.
"The CAD and NOK have both been undermined by the sharp decline in the price of oil with Brent falling back below USD70/barrel," says MUFG in a note released Friday.