GBP/CAD inched lower in early trading on Friday, reaching its lowest levels since September of 2017. The cross has been driven lower simultaneously by Brexit gloom and dovish Fed rhetoric.
Sterling remained near two year lows on Friday as disappointing economic data and the looming Brexit deadline pressured the British currency. Last week, Bank of England governor Mark Carney adopted a more dovish stance, suggesting that the central bank may join others across the globe in cutting interest rates. Carney pointed to a global trade war and a no-deal Brexit as growing risks to Britain’s economy.
Fears of a hard Brexit remain strong with Boris Johnson the favourite to replace Theresa May as UK prime minister on July 23rd. Johnson has vowed to take Britain out of the European Union by the October 31st deadline “deal or no deal”.
In an interview with the BBC published on Thursday, Sir Richard Branson added to the bleak outlook, stating that “the pound will collapse to parity if there’s a hard Brexit”.
Meanwhile, the Canadian dollar was lifted as the Federal Reserve maintained its dovish stance and fueled expectations of a rate cut later this month. Fed Chair Jerome Powell confirmed on Thursday that an interest rate cut is likely amid trade disputes and the threat of a global economic slowdown. On Wednesday, the Bank of Canada held interest rates steady at 1.75% as expected and contrastingly indicated it had no intention of easing monetary policy.
Looking at the daily chart above we can see that GBP/CAD has been in a steady downtrend starting in May. A bearish death cross (50 period simple moving average crossing below the 200 period simple moving average) took place in late June, ushering in the latest leg of the down move. Potential support lies at the prior low of 1.5832.