Inflation data from the UK and Canadian economies should determine this week’s trend in the GBP v CAD.
GBPCAD – Daily Chart
The price of GBPCAD is trading within a price channel and resistance comes in ahead around the 1.81 level.
RBC expects “falling energy prices in September likely pushed Canadian inflation even lower than in August when the headline consumer price index fell to the Bank of Canada’s 2% target for the first time in more than three years”.
The bank’s analysts expect to see Canadian CPI at 1.8% year-on-year when it is released later on Tuesday. That data is released at 8:30 pm HKT, but traders can catch the UK employment rate at 2pm HKT.
The UK’s inflation data is released at 2pm HKT on Wednesday and that is also expected to dip below 2% on an annual basis. The country’s retail sales will be released at the same time.
The Canadian jobs market exceeded expectations in September, adding more than twice as many jobs as the previous month and seeing a small drop in unemployment. But digging deeper into the data was a concern for analysts with a lower participation rate.
Analysts are mixed on the outlook for interest rates in Canada, with some saying that only a rapid worsening in the economy would bring a 50-basis-point cut. However, RBC assistant chief economist Nathan Janzen wrote in a recent note that the bank’s forecast is for a half-percentage-point cut in October and the same in December.
“Details behind the September job numbers were far more mixed than the headline employment and unemployment rate readings alone would imply,” he wrote.
That outlook is leading to continued weakness in the Canadian dollar and if the inflation figures support the pound then the exchange rate could test the upside resistance.
Bank of England’s governor Andrew Bailey said there was potential for the central bank to become a “bit more aggressive” on its own interest rates if inflation continued to move lower.
