Trading GBP/CAD

The GBP/CAD is one of the key forex cross pairs. The pound sterling is the world’s 5th top reserve currency, while the Canadian dollar is 7th on the list. It is a popular FX asset with decent bid-ask spreads, high volatility and ample liquidity. This tutorial will break down GBP/CAD investing strategies, ideal trading windows, price history and benefits of the forex pair.

Live Chart

GBPCAD Chart by TradingView

Pros Of Trading GBP/CAD

• Volatility – This currency pair displays high levels of volatility, with wide spreads in slow periods and narrow spreads during busy periods. This allows for plenty of opportunities to make trades and profit from price fluctuations when spreads are tightest.
• Relative predictability – Historically, the GBP/CAD has a tendency to display notable trends in the long term, especially with the CAD being a commodity currency.

So, research and analysis can be straightforward, making it a good choice for medium to long-term gains.

• High-interest rates – As the pair contains the GBP, it has some of the higher interest rates among key currencies. Thus, this FX pair provides enough liquidity and trading volume to make it a popular investment choice.
• Resources – Conducting technical analysis is easier to make with the number of tools available. Live candlestick charts help you access real-time price movement, historical graphs show you FX rates from yesterday or last week, and pivot points can help you analyze trends over time. Plenty of websites can give you access to investing forums with trader sentiment ratings and market outlook. All of these are useful when creating predictions for today or in the long term.

Risks Of Trading GBP/CAD

• Volatility – while the GBP/CAD volatility can result in quick wins, swift movements can also lead to losses. To counter this, traders must employ effective risk and money management strategies.
• Low relative liquidity – Being a minor currency pair, it has lower liquidity compared to other pairs like the GBP/USD. This can make it more expensive to trade.
• Report heavy – Much of the movement in exchange rates depends on important economic news, not only from the respective countries of the GBP/CAD pair but from neighboring countries like the US and Europe.

Therefore, the decision to buy and sell is not always straightforward when it comes to trading GBP/CAD. The ongoing conflict between Ukraine and Russia in Europe has impacted the GBP, indirectly weakening the GBP/USD pair. Traders may benefit from competitive bid-ask spreads or yearly forward rates, but the market is currently dominated by intelligent investment algorithms, making it a challenge for most traders. These bots enter and exit positions based on predetermined criteria.

When investing in GBP/CAD, there are several factors that influence market sentiment and average prices. Neighboring countries’ economies, such as Canada and the US, are closely related, and growth in the US may affect the CAD’s performance. Similarly, decisions made during Brexit by Europe were vital in determining the future of GBP/CAD. The pair is also a proxy for the dynamics that occur in the EUR/USD pair. Monetary policies set by the Bank of England for GBP’s interest rates and the Bank of Canada’s decisions to raise or lower interest rates also affect the future performance of CAD. For instance, the GBP/CAD and USD/CAD pairs have a negative correlation.When the CAD strengthens, the GBP/CAD rate decreases, but the USD/CAD rate increases.

Understanding currency correlations is essential in managing risk and diversifying your portfolio.A diversified portfolio includes a mix of positively and negatively correlated pairs to reduce the overall risk.

Conclusion

The GBP/CAD is a popular cross-currency pair that is heavily influenced by commodity prices and economic announcements.To trade this pair successfully, it is essential to keep up to date with market news and to understand currency correlations.

Popular pairs include USD/CHF, USD/JPY, and USD/CAD. You will notice that the US dollar is the base currency.

Application

A GBP/CAD trader can use this information to better understand the consequences of movement in certain pairs. Specifically, keeping an eye out for proxy pair EUR/USD can be used to your advantage. However, it is important to note that correlations do not always remain stable. This is because economic factors and market speculation can result in shifts in currency correlations.

GBP/CAD Trading Strategy

No matter the strategy you opt for, whether you utilize pivot points, support and resistance levels, 5-year averages, or live charts to create weekly projections, the following can make the difference in your strategy:

Timing

Successful GBP/CAD day trading depends on timing. You typically want to invest during the highest levels of volume and volatility to generate profits above the cost of spreads and commission. Thus, it’s important to trade during the ideal window.

Just because the forex market is open 24/5 does not mean every one of those hours is worth trading. So, when is the ideal time to trade? Significant movement in GBP/CAD usually occurs when the European trade session opens. This is between 08:00 to 17:00 GMT.

However, the majority of UK monthly economic data news comes out between 07:00 to 09:30 GMT, and US economic releases come out at 13:30 to 15:00 GMT.

This is when the pair usually experiences higher volumes. Particularly, 30 to 60 minutes before releases and 1 to 3 hours after are good times to trade as news flow can impact the pair’s value.

Buying & Selling GBP/CAD

There are a number of strategies you can utilize when investing in GBP/CAD.

Scalping strategies involve attempting to make profits by buying or selling an FX pair and holding it for an ultra-short period. Since the GBP/CAD pair has good volatility, it makes scalping possible. A scalper capitalizes on small price movements that occur throughout the day. Then they rely on compounding their gains by making a large number of small trades.

You can opt for a swing trading strategy that focuses on capturing short to medium gains and cutting losses quicker in the market. Trading positions typically last anywhere between days to weeks, with the idea to consistently gain short-term profits that accumulate over time. Generally, swing traders go long at levels of support and short sell at levels of resistance.

You can also use trends to inform your strategies. A trend can move upwards, downward, or sideways. As mentioned, GBP/CAD benefits from relative predictability, so identifying historical trends to your advantage can prove profitable when deciding market entry and exit points. Generally, GBP/CAD trends tend to form in the medium to long term, which you can decipher on live charts.

Trend traders usually opt for long positions when the current price of the pair moves down past the moving average, and short positions when the price goes above the moving average.

Latest News

Some traders prefer to incorporate the latest market news and outlooks into their GBP/CAD investment strategies. This is because major news releases can cause shifts in GBP and CAD prices. Several forex news sources offer analysis, forecasts, pre-market sentiments, and real-time GBP to CAD conversions. The following are some popular sources:

• TradingView provides access to the latest GBP/CAD price changes, charting tools, forecasts, and market news
• IG is a top forex trading platform with excellent tools and spot rates, as well as 5-year, 10-year, and 20-year charts
• X-rates offers live exchange rates, a free currency conversion calculator, and a monthly exchange rate average
• XE provides real-time daily exchange rates showing how many CAD can be converted to the pound, which is useful for getting optimum travel money rates and quotes
• Banks such as HSBC and Mastercard offer live FX rates

GBP/CAD History

It is also beneficial to understand the currencies’ origins and any significant historical data before investing in the GBP/CAD.

Early GBP/CAD

The pound sterling was first created in 775 AD when silver pennies were the dominant currency during the Anglo-Saxon era.

Having been around for 1200 years, the GBP is thought to be the oldest currency still in circulation today. The Bank of England was the first central bank in history, born out of the Battle of Beachy Head in 1694 and 1944. The Bretton Woods conference shifted the world from the pound sterling to the US dollar.

In the early 1840s, Canada adopted the Canada pound but transitioned to a decimalized dollar in the 1850s. Nicknamed the ‘loonie’, the CAD was attached to the USD until 1970. This was after the fall of the CAD after 1960, but inflation meant that it had returned to a free-floating currency, and it remains so today. The Canadian dollar is controlled by the country’s central bank, the Bank of Canada.

Recent GBP/CAD

Over recent years, historical exchange rates of GBP/CAD have been affected by key events. After the UK’s referendum vote to leave the EU in 2016, the pound sterling saw its lowest levels since 1985. Brexit caused the GBP to fall more than 10% overnight, hitting $1.3236. The impact of the vote still has some lasting impacts until this day, with the decline affected by concerns over a successful Brexit deal. For example, in October 2019, the GBP to CAD exchange rate was struggling to move back to the higher levels it saw in the previous month. At the time, its rates were sitting at 1.639, while the Brexit deadline was expected to happen at the end of that month.

The CAD dollar saw a sharp rise in 2007, hitting parity with the US dollar for the first time since 1976.

However, in recent years, dramatic fluctuations in the value of the Canadian dollar have primarily correlated with the shift in oil prices, which reflects its status as a commodity currency.

For example, in 2016, the price of oil dropped to $30 per barrel. Against the US dollar, CAD hit a low of 1.46. A similar scenario happened in 2020 during the Covid-19 pandemic when oil dipped to sub-zero. This sent the CAD to 1.44.

While the CAD value is mainly dependent on the US market and oil prices for success, the pound is much more impacted by political and economic risks. During Brexit, the GBP was weakened. This can clearly be seen on charts, especially paired with USD, which at the time was much stronger than the pound.

In 2022, another major economic risk that affects the GBP is the inflation rate caused by the higher oil prices and a need for rebalancing after the Covid-19 relief policies. At the same time, because the United Kingdom is impacted by Europe, the effect of the Ukrainian-Russian war can also be seen in charts, with GBP/CAD dropping to 1.58 in May 2022.

Role Of GBP

Before you start investing your capital into the GBP/CAD pair, it helps to gain context on the role these two currencies play. With this knowledge, you will be in a stronger position to make predictions about the market.

While the UK is smaller in size geographically, its economy is the fifth-largest in the world. In fact, London is home to nearly 43% of daily forex exchange transactions.

The economy of the country is service-oriented, followed by manufacturing and agriculture sectors. Its banking and financial activities are also becoming the greatest contributors to the national GDP.

The UK’s monetary and fiscal policies have been shown to outperform most other EU countries. The British pound is, in fact, the world’s fifth most widely held reserve currency. It is also one of the few currencies worth more than the US dollar. GBP accounts for around 13% of daily forex trading volume in the forex market, with commonly traded pairs being GBP/USD and EUR/GBP.

While the pound has a long history of global economic leadership, major political events, such as Brexit could undermine the position of the pound. This is what long-term investors will have to take into account. On the other hand, this volatility can provide short-term traders with investment opportunities.

Role Of CAD

It is also important to understand the role the CAD plays.

Canada is ranked tenth in the world in terms of GDP and has had relatively strong growth over the last 20 years, with brief periods of recessions in the early 1990s and 2009. While manufacturing is the country’s cornerstone, Canada’s economy relies heavily on commodities as it is a producer of petroleum, minerals, woods, and grains. Thus, trade flows from those exports can influence investor sentiment. As mentioned, investors must also consider the events happening in the US due to the tight trading relationship with Canada.

Major economic data from Canada includes the release of GDP, retail sales, industrial production, inflation, and trade balances.

Monetary policy is controlled by the Bank of Canada.As a country with relative economic health, it has had high-interest rates against other developed economies.And while it is not a top reserve currency like the GBP, it is considered a global safe haven.

Final Word On Trading GBP/CAD

The GBP/CAD pair promises volatility, relative predictability, and high-interest rates, which attract traders from around the world.It is important to utilize tools like technical analysis, real-time exchange rates, historical chart graphs, signals, and trends.On top of that, it is important to maintain risk management strategies and to conduct quality trading during the ideal investing window.Investing with a trusted OTC broker such as Oanda can also prove fruitful.

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