Bias: bearish-to-range-bound, CAD/GBP sits below its 90-day average and in the lower half of the three-month range.
Key drivers:
- Rate gap: BoC policy rate remains below BoE, widening the gap and weighing on CAD vs GBP. A shift in BoC messaging that surprised markets could narrow the gap and limit the downside for CAD/GBP.
- Risk/commodities: Oil price trend higher supports CAD via its commodity link; persistent volatility keeps cross-rates tugging.
- Macro factor: UK GDP growth is projected to slow this year. A softer economy would keep pressure on the pound, with scope for limited CAD outperformers.
Range: CAD/GBP is likely to drift within its three-month range, with a tilt toward the lower end as markets await data.
What could change it:
- Upside risk: Oil price rally persists, lifting CAD and pushing CAD/GBP higher. Geopolitical developments that boost risk appetite could also support the loonie.
- Downside risk: Strong UK data and a higher-for-longer BoE path lift the pound, pressuring CAD/GBP lower.