How to Trade the GBPCAD Currency Pair
Did you know that the UK is Canada’s third largest trading partner? The trading relationship between the two countries is worth more than £19 billion and growing.
In this ‘How to Trade the GBPCAD Currency Pair’ article, we cover the basics of the currency pair and how it works, the tools that can help to analyse the GBPCAD chart and forecast its price movement and more.
Table of Contents
How does the GBPCAD Exchange Rate Work?
A currency pair’s exchange rate can tell you the worth of once currency when purchased using another. For example, if the GBPCAD exchange rate was 1.5400 this would mean that 1 British pound will buy you 1.5400 Canadian dollars.
When viewing a live currency exchange rate, you will often have two prices or quotes. Typically, the price on the left is referred to as the bid price and the price on the right is referred to as the ask price. These prices will fluctuate constantly when the foreign exchange market is open which 24 hours a day, 5 days a week.
If you believe the GBPCAD exchange rate will rise in value and you bought the currency, you would be filled at the ask price at the time of purchase. If you believe the GBP/CAD exchange rate will fall you would sell or short at the bid price.
When trading the currency market using products such as CFDs (contracts for difference) you speculate on price direction which enables you to potentially profit from both rising and falling markets.
CFDs also allow you to trade on margin which means you are able to open a large position using a small deposit which is held as collateral or margin. This has the effect of amplifying both winning AND losing trades.
Learn more about the benefits and risks of CFDs in The CFD Trading Guide. You can also register for the free Forex 101 trading course where you can learn much more about trading the foreign exchange market.
GBPCAD Investing Analysis – Technical vs Fundamental
When you start GBPCAD investing, there are a variety of different types of analysis you can do to analyse the exchange rate and its potential future movement.
GBPCAD Fundamental Analysis
Fundamental analysis is the study of macroeconomic data and news. This includes trends and announcements in retail sales, interest rates, employment figures, etc. Central bank policy has the largest impact on the price trend of a currency as its members would analyse economic data to set interest rate policy.
GBP to CAD Interest Rates
The Bank of England and Bank of Canada have a mandate set by the government to keep inflation (the change in the price of goods and services in a country) at a certain level to keep the economy balanced. In order to do this, the central bank will increase or cut interest rates to either stimulate economic growth or slow it down.
In the first six months of 2022, the GBP to CAD exchange rate fell sharply even though both central banks were increasing interest rates. This had a positive effect on the Canadian dollar as international investors moved their capital to the country to receive a higher rate of return, among other factors.
Rising interest rates had a negative effect on the British pound as investors believe this would lead to stagflation. This is a period of time when inflation is high but economic growth slows. Therefore, during this period of time investors believed that Canada’s economy would grow faster than the UK’s economy.
This is in line with the Organisation for Economic Co-Operation and Development (OECD) findings which expected the UK to go from the second fastest growing economy in the G7 (UK, US, Canada, Japan, Germany, France and Italy) to the slowest growing economy in 2023.
GBP/CAD Oil Influence
The GBP/CAD exchange rate can also be heavily influenced by oil. The Bank of Canada itself has stated that the Canadian dollar is now much more sensitive to the price of oil. Research shows that Canada has 17 oil refineries that have a crude oil refining capacity of around 2 million barrels per day.
As Canada produces more oil and natural gas than they use, the remainder is exported to one place – the United States. In fact, Canada is the largest exporter of oil to the United States. Therefore, there can be a correlation between the Canadian dollar and oil prices which can affect the price of the GBP/CAD exchange rate.
However, recently oil prices have decoupled from the price of the Canadian dollar due to the effects of the pandemic, high inflation and central bank policy.
GBPCAD Technical Analysis
As institutional investors have a long-term time horizon, they would analyse fundamentals to see where a market could be trading in the future. However, for most short-term to medium-term traders, technical analysis would be used to try and identify turning points in the market and future price direction.
Technical analysis tends to be more of a popular method for swing traders and day traders. It is the study of price data using technical indicators and chart patterns and tends to come in three different forms: Chart Patterns, Candle Patterns and Technical Indicators.
Fortunately, Admirals provides its clients with access to the Technical Insight Lookup indicator in the Premium Analytics section of the Dashboard.
This indicator finds technical analysis events in thousands of different markets.
The Technical Insight Lookup analyses GBP to CAD history to identify technical analysis events taking place on the GBPCAD exchange rate. It details these events with a picture and a short description of the event.
You can click on each event to learn more about it which is also a great way to educate yourself on how to use different technical analysis indicators and chart patterns.
The indicator can be used across thousands of markets. You can access the indicator through the premium analytics tab when logged into the Admirals Dashboard.
GBPCAD Long-Term Forecast
The long-term price chart of the GBP/CAD exchange rate below it shows how volatile the currency has been as each candle represents one month’s worth of trading. The monthly GBP to CAD history shows a long-term trading range that developed from 2015 to 2021.
The first six months of 2022 have been particularly bearish for the GBPCAD chart as the exchange rate declined significantly. In the UK government's 'mini-budget' announcement in September 2022, the GBPCAD exchange rate crashed to levels not seen since 2009. However, by the end of the month, the monthly price candle had rallied back up to close above the previous multi-year low at 1.4831.
The horizontal level is a multi-year low not seen since 2010. Now that the price has bounced higher from this price level, some traders may look for trend continuation towards the upside to continue. However, a move back below this will be bearish in which short sellers may take control once again.
Keeping track of the fundamentals and technical analysis events can help when making GBPCAD investing decisions.
You can also learn about what’s happening in the market by registering for your free spot in the Admirals' live trading webinars which are hosted by experienced traders three times a week.
Frequently Asked Questions on Trading GBPCAD
Is GBPCAD Buy or Sell?
Currently, the GBPCAD exchange rate is in a downtrend as the 50 exponential moving average is below the 100 exponential moving average. Momentum could continue to multi-year lows not seen since 2010 but trends can change over time.
What affects GBPCAD?
Policy actions of the Bank of England and Bank of Canada can affect the price direction of GBPCAD. In particular, the hiking or cutting of interest rates can influence GBPCAD. Oil prices should also be taken into consideration due to their correlation to the Canadian dollar.
How do you trade in GBPCAD?
Through currency CFDs (contracts for difference) you can speculate on the price direction of GBPCAD and potentially profit from both rising and falling prices. CFDs also enable you to use leverage which can amplify both profits and losses.
Other articles you may find interesting:
- The Bollinger Bands Strategy Guide
- Use MetaTrader Like a Pro With MT4 & MT5 Shortcuts
- How to Trade with MetaTrader WebTrader
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