GBP to CAD Forecast

History of the GBP to CAD pair

The GBP/CAD pair has had a long history due to the close trading relationship between the UK and Canada. They both are western allies and members of the G7, G20, OECD, and other organizations.

The British pound was first introduced in 1,489 and was the most used currency for centuries. It was also used in most British colonial countries, including Canada which shifted from sterling to the Canadian dollar in 1,858.

The Canadian dollar has done better than the British pound over the years as the role of the UK in global affairs has diminished. Indeed, the GBP to CAD pair has dropped from a high of 2.8 in December 1980 to the current 1.61, which is a ~44% decline.

The British pound has struggled because of the rising challenges faced by the country. In 2016, the country voted to leave the European Union (EU), its biggest trading partner but this resulted in struggles faced by several core sectors in the country. For example, the automobile sector which employed millions of people has shrunk as the number of cars manufactured in 2022 dropped to the lowest point since the 1950s.

On the other hand, Canada has benefited from its close relationship with the United States and the robust energy markets. It has emerged as a top player in other commodities like gold and silver; and is the fourth-biggest oil producer in the world after the US, Saudi Arabia, and Russia. The chart below shows the performance of the GBP/CAD pair since 1975.

Latest GBP to CAD forecast

The outlook of the GBP/CAD price is bearish because of the challenges faced by the British economy in 2023. A recent report by the IMF estimated that the UK will be the worst-performing country in the G10 and G20 countries.

At the same time, another report by OECD estimated that the UK economy will contract by 0.4% in 2023 before making a small recovery in 2024. The UK is facing increased labor strife while inflation remains in double digits.

Canada, on the other hand, is expected to continue doing well in 2023. The OECD expects that Canada’s economy will grow by 1% in 2023 after being slowed down from 3.2% in 2022.

Other economic trends are also favoring the Canadian economy. The country’s inflation dropped to 6.3% in December while UK’s was at 9.2% in the same month. Canada’s industrial and manufacturing production has done better than in the UK.

The only thing favoring the GBP against the CAD is the actions of central banks. In January, the BoC decided to hike interest rates by 0.25% to 4.50%. It also continued with its quantitative tightening policy but hinted that the end of the hiking cycle was nearing.

In the UK, the Bank of England hiked by 0.50% in its February meeting, bringing the official cash rate to 4%. It hinted that more hikes are coming this year since inflation remains stubbornly high.

Oil prices are supportive of CAD

The Canadian dollar, often known as the loonie, is often influenced by oil prices because of the volume it exports to other countries, especially the United States. As such, higher oil prices mean that the demand for the Canadian dollar remains high.

Oil prices have been relatively steady in 2023, with Brent holding well at $80 while the West Texas Intermediate (WTI) came in at $73. Some analysts, especially from Goldman Sachs expect that oil prices will soar back to $100.

GBP to CAD technical analysis

The GBP/CAD price formed a double-top pattern at 1.6680 on the daily chart. This pattern is usually one of the most accurate signs of a reversal. On February 6, the pair was trading at the neckline of this pattern and crossed below the 25-day and 50-day moving averages. It is now at the 61.8% Fibonacci Retracement level.

Therefore, the pair will likely have a bearish breakout in the next few months, with the next key support level being at 1.5700, the 50% Fibonacci Retracement level. On the flip side, a move above the resistance point at 1.6500 will invalidate the bearish view.

Transferring GBP to CAD

The GBP and CAD currencies rank high among the most popular currencies in the world. Because of historical reasons, the British pound is usually more common than the Canadian dollar and is the third-biggest currency reserve in the world after the US dollar and euro.

The volume of GBP to CAD pairs traded every day is significantly smaller than other forex majors like GBP/USD and USD/CAD. That’s partly because the trade volume between Canada and the UK is not all that expansive.

The total goods trade volume between Canada and the UK totaled about $25 billion in 2020. Canada exported goods worth about $13.2 billion to the UK, with gold, crude petroleum, and Iron Ore being the top products.

In the same period, the UK exported goods worth about $7.03 billion. Canada’s exports to the UK have risen by 5.88% annually in the past 25 years while those from the UK rose at just 2.57%.

Demand for cross-border payments between the UK and Canada has been rising in the past decade because of the rising migration and rade. For example, the number of Canadians living in the UK rose from about 63,555 in 1990 to over 91,545 in 2017 and about 600k residents of Canada are British-born.

As shown below, some money transfer companies charge no fees to send money from the UK to Canada and Wise charges just 4.49 pounds to send 1,000 pounds.

Is it a good time to buy GBP with CAD?

The GBP to CAD pair has been in a bullish trend after it dropped to a multi-month low of 1.4045 in September 2022. It rose and peaked at 1.6860 in December, the highest point since March 2022. However, it has formed a bearish double-top pattern, signaling that the pair will continue falling in the near term.

Therefore, the British pound will continue to be cheaper than the Canadian dollar for a while. As such, a likely situation is where you buy the Canadian dollar as it continues to gain against the pound. You can then exchange it back to the British pound later in 2023 when the rate is favorable.

GBP to CAD 6 month forecast next 6 months – analysis

The outlook of the GBP/CAD pair for the next six months is bearish. As mentioned in the daily chart technical analysis above, the pair formed a double-top pattern and has moved to the 61.8% Fibonacci Retracement point.

Therefore, the pair will likely continue falling, with the initial target being the 50% retracement point at 1.5720. A crash below that level will open the possibility of the pair falling to the psychological level of 1.5500.

A bit more about GBP to CAD