GBP/CAD Forecast: No End in Sight for the GBP to CAD Sell-Off

Summary:
• The GBP/CAD price moved sideways as the market reacted to important inflation data from the UK and Canada.

The GBP/CAD price moved sideways as the market reacted to important inflation data from the UK and Canada. The GBP to CAD exchange rate also reacted to UK politics, where Rishi Sunak will face off with Liz Truss. It is trading at 1.5435, which is about 13.8% below the highest point in 2021. 

BoE and BoC convergence

The GBP/CAD price has been in a downward trend in the past few weeks even as the BoE and BoC policies have converged. The two central banks have embraced an extremely hawkish tone in their bid to fight inflation. They have each delivered several interest rate hikes this year. Last week, the Bank of Canada decided to hike interest rates by 100 basis points. 

Data published on Wednesday showed that the two countries are still battling inflation. In the UK, the headline inflation surged to a multi-decade high of 9.4%. Core inflation in the country declined from 5.8% to 5.7%. In Canada, inflation rose from 7.7% to 8.1% while the median CPI rose by 4.9%. While the core inflation in the UK fell, it rose from6.1% to 6.2% in Canada.

The GBP to CAD price has also retreated because of the political situation in the UK. Boris Johnson announced that he will resign this week. Now, after a week of political uncertainty, conservative MPs voted to advance Rishi Sunak and Liz Truss to the next level. The two will compete to become the next premier. Still, analysts believe that they will continue with Johnson’s policies.

GBP/CAD forecast

The GBP/CAD price has been in a strong bearish trend in the past few months. It is now trading at 1.5423, which is the lowest it has been since 2013. On the daily chart, the downward trend is being supported by the 25-day and 50-day moving averages. The Relative Strength Index (RSI) has remained slightly below 50.

Therefore, the pair will continue the downward trend as long as it is below the two moving averages. If this happens, the next key support level to watch will be at 1.5300. The bearish trend will be invalidated if the pair moves above the 50- and 25-day MAs. This estimate is in line with my previous forecast for GBPCAD.