Bearish loonie sentiment was fuelled when Canadian core CPI eased 1.4% to its slowest pace since July 2003 clearing the way for a March BoC rate cut.
The MPC has been reluctant to follow the Fed on a path of multiple rate cuts, but recent data from the U.S. has reinforced the belief that Canada’s main trading partner may already be in a recession.
In order to prevent a similar downturn in their own economy they may have to be just as aggressive and it is certainly expected as the Loonie has weakened against the pound after a fall in inflation.
The source of the BoC’s reluctance has been strong domestic demand, which is now showing signs of weakening, as retail sales printed at 0.6% versus expectations of 0.8% in December.
Overall, the global demand for commodities may continue to be a source of growth for the Canadian economy as some developing countries continue to show signs that they can withstand a U.S. slowdown.

Therefore, Rate cuts from Canada should push the CAD down, however we expect that poor date from this side of the pond will prevent any slippage and the GBP/CAD will remain range bound.