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The Pound to Canadian Dollar exchange rate (GBP/CAD) is trending higher again.
The Pound is looking to book a seventh daily advance against the Canadian Dollar having found strong buying interest at a key support zone last week; a technical development that was reinforced by a supportive Bank of England decision on Thursday.
Like most other GBP pairs, GBP/CAD fell through July but found itself better supported as it approached the lower end of a multi-month range at 1.83.
The move lower was driven by a series of poor economic data releases that confirmed a sense that the economy requires some stimulus from the Bank of England via lower interest rates.
The Bank complied with a cut of 25 basis points on Thursday, but signalled that another cut in November is not a given as it is concerned about the country's inflation rates, which continue to rise.
Falling odds of a November cut triggered a rise in short-term UK bond yields and the Pound.
For GBP/CAD, the rebound happened at the bottom of a multi-week range, and cemented the supportive credentials of 1.83.
Subsequent buying interest means we are now journeying back through the middle of that multi-month range, putting the near-term target at range zone resistance at 1.8673.
1.8673 is probably too far away to be achievable this week, and we could even see the rally take a breather soon. For one, the exchange rate has diverged a little too far from its nine-day exponential moving average: Spot is currently at 1.8519 and the nine-day EMA is at 1.8428.
Usually, the exchange rate will hug its nine-day EMA, and a mean-reversion a little lower is possible this week.
That being said, given the current configuration, any weakness should be relatively shallow and bought into.
The main calendar event for GBP/CAD will probably be that of U.S. inflation, due Tuesday, because it should have an effect on trade in GBP/USD.
GBP/CAD is highly reflective of developments in GBP/USD, as a correlation between the two has emerged this year. This is likely linked to the tariff trades and the belief that the Canadian economy's fortunes are linked to those of its southern neighbour.
Headline CPI is forecast at 2.8% and core at 3.0%. Anything above here would prove disappointing and risk triggering a stock market selloff as investors become fearful that the U.S. is entering a stagflationary period of low growth and high inflation.
Tuesday brings with it some UK-specific data that could influence the major GBP exchange rates. The ONS is expected to tell us the unemployment rate remained steady at 4.7% in June, but the associated sub-components of the report should confirm an underlying deterioration in the data.
Weakening employment and salaries would typically invoke interest rate cuts at the Bank of England, which in turn would weigh on the British Pound.
But because the Bank is increasingly concerned about the UK's above-target inflation rates, the labour report might be of less importance to the market than would normally be the case.
A weak reading would allow GBP/CAD to pare recent gains, but we doubt there will be enough in it to halt the current upmove.