GBP/CAD slips as oil prices fuel Loonie after mixed UK jobs data

• GBP/CAD trades at 1.6924, pressured by rising oil prices and a UK unemployment rate increase to 4.3%.
• Bank of England hints at a rate cap at 5.50%, while the Bank of Canada eyes further tightening amid strong job growth.
• Upcoming monetary policy decisions could dictate the pair's direction, but higher oil prices may tilt the scales in favor of the Loonie.

The Loonie (CAD) extends its gains against the Pound Sterling (GBP) due to increasing oil prices and mixed UK economic data. Hence, the GBP/CAD is trading at 1.6924 after hitting a daily high of 1.7020.

Loonie strengthens against the Pound amid rising Oil prices and mixed UK economic indicators

During the European session, the Office for National Statistics (ONS) in the UK revealed the Unemployment Rate climbed to 4.3% in the three months to July, above the prior month’s 4.2%, while wages excluding bonuses grew by 7.8%, as expected, unchanged to the last reading.

Although the labor market is cooling, as the UK economy feels the impact of higher interest rates imposed by the Bank of England (BoE), higher wages suggest the central bank’s job isn’t done. The BoE’s expectations for another rate hike remained below last week’s estimates, which foresaw the bank rate to end at around 5.73%. Nevertheless, the latest data round suggests that Bailey and Co would refrain from exceeding the 5.50% threshold.

On the Canadian front, as the economy added more jobs than expected, as revealed last week, it has opened the door for additional tightening by the Bank of Canada (BoC). The BoC has expressed that people demanding higher wages would make it harder to curb stickier inflation.

The latest BoC monetary decisions witnessed the BoC keeping rates unchanged at 5%. But the chances for additional tightening remain, as money market futures show 15 bps of further tightening for BoC’s June 2024 monetary policy decision.

In his latest remarks last Thursday, Tiff Macklem, the BoC’s Governor, stressed that interest rates may not be high enough to tame inflation. He added, “Going forward, we will look for further evidence that price pressures are easing.”

Given the fundamental backdrop, the GBP/CAD could consolidate ahead of the upcoming monetary policy decisions in the near term. Nevertheless, higher oil prices could offset the interest rate differential in favor of the Pound Sterling (GBP) and open the door for further weakness in the cross-currency pair.

GBP/CAD Price Analysis: Technical outlook

The daily chart depicts the pai as neutral to downward biased, despite the fact the GBP/CAD remains above the 200-day Moving Average (DMA). However, successive series of lower peaks and throughs suggest the cross would test the 1.6900 figure. A breach of the latter would expose the July 24 daily low of 1.6883, followed by the 200-DMA at 1.6729. Conversely, if buyers reclaim the 100-DMA at 1.6958, that could pave the way towards 1.7000.