This week, our currency strategists focused on the BOC Monetary Policy Statement (March 2025) and its potential impact on the Canadian dollar for potential high-quality setups.

Out of the four scenario/price outlook discussions this week, one discussion arguably saw both fundie & technical arguments triggered to become potential candidates for a trade & risk management overlay.

Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.

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GBP/CAD: Tuesday – March 11, 2025

GBP/CAD 1-Hour Forex Chart by TradingView

Last Tuesday, our strategists had their sights set on the Bank of Canada monetary policy decision and its potential impact on the Canadian dollar. Based on our Event Guide, expectations were for the BOC to cut its policy rate by 25 basis points to 2.75%, with markets looking for signals on future policy direction amid escalating U.S.-Canada trade tensions. With those expectations in mind, here’s what we were thinking:

The “Loonie Lift” Scenario:

If the BOC delivered a less dovish than expected message or highlighted inflation concerns despite the rate cut, we anticipated this could boost CAD. In a risk-on environment, we focused on CAD/JPY for potential long strategies, especially given the recent strong wage growth data from Japan that could support the yen.

In a risk-off environment, we considered GBP/CAD for potential short strategies, particularly given the pair’s approach to key resistance levels and the potential for a countertrend move if the BOC surprised with hawkish commentary.

The “Loonie Letdown” Scenario:

If the BOC signaled faster rate cuts or expressed heightened growth concerns due to trade tensions, we thought this could weigh on CAD. We considered NZD/CAD for potential long strategies in a risk-on environment, particularly given the RBNZ’s less dovish stance in recent weeks and New Zealand’s potentially more stable trade footing compared to Canada. If risk sentiment turned negative, CAD/CHF shorts looked promising given the Swiss franc’s status as a safe haven during trade uncertainties.

What Actually Happened:

The BOC cut rates by 25 basis points to 2.75% as expected, marking its seventh consecutive rate reduction since June 2024. However, the tone was notably less dovish than markets anticipated:

• Some officials had discussed leaving rates unchanged at 3%
• BOC noted the economy entered 2025 in a “solid position” with robust Q4 growth of 2.6%
• Inflation remained close to the 2% target, but BOC warned about higher price risks due to tariffs
• Governor Macklem emphasized in his press conference that “monetary policy cannot offset the impacts of a trade war” but stressed the importance of preventing higher prices from leading to ongoing inflation

Market Reaction:

This outcome fundamentally triggered our “Loonie Lift” scenarios, but with risk sentiment leaning negative due to geopolitical tensions and tariff announcements, GBP/CAD was our pair to watch for the contrarian setup.

Looking at the GBP/CAD chart, we can see the pair had been trending upward since early March, forming an ascending channel pattern. Following the BOC event, the Canadian dollar saw a temporary boost as traders reacted to a less dovish stance from officials. GBP/CAD found its way to retest the 1.8600 handle before the end of the session, then once again heading into the Thursday U.S. session.

GBP/CAD then quickly bounced back up to the 1.8700 psychological handle after Trump threatened tariffs against the EU on Thursday, sending broad risk vibes towards negative, and the Loonie lower against the pound.

It was there that the bears held and took back control quickly, likely due to disappointing U.K. economic data on Friday (including weaker-than-expected GDP and manufacturing figures), and a broad turn in risk sentiment towards positive on improving geopolitical narratives, including an likely averted U.S. government shutdown and positive comments from U.S.-Russia talks. The momentum was enough to break 1.8600 and nearly test the 1.8550 minor psychological level for a solid short  move (more than one daily ATR) ahead of the weekly close.

The Verdict:

So, how’d we do?

Our fundamental analysis correctly anticipated that a less dovish BOC stance could create a countertrend opportunity in GBP/CAD, which played out well initially. The pair saw a clear rejection from resistance and consistent selling pressure after the central bank event.

If traders had positioned for shorts near R1 or the 1.8700 psychological level after Macklem’s hawkish press conference comments, they could have captured a substantial move lower. However, trade management would have been the deciding factor in the final outcome given the different catalysts and intraday swings.

Those who tightened their stop losses after the initial 100-pip drop would have likely been stopped out during Thursday’s bounce following Trump’s new tariff threats. Meanwhile, traders who maintained their original risk parameters and added to their positions at the second rejection from the identified resistance levels would have significantly enhanced their profits when the pair resumed its decline on Friday, driven by disappointing U.K. economic data.

Overall, we think this discussion “likely” supported a net positive outcome as both fundamental and technical triggers aligned well. While the path wasn’t a straight line down, the pair ultimately closed the week substantially lower than the resistance levels we identified, confirming our countertrend setup thesis.