Image © Adobe Images
Canadian Dollar Slumps to 6-Week Low.
The Canadian Dollar is on the back foot, but could find imminent technical support against the Pound.
The Pound has surged to a new six-week high against the Canadian Dollar on the back of broad U.S. Dollar weakness and Canada's evolving trade war with China.
Yes, China. Not only is Canada fighting it out with its closest trading partner down south, but also its biggest export destination for some key agricultural products.
China on Tuesday said it would impose anti-dumping duties of 75.8% on Canadian canola imports, representing the latest escalation in a tariff tit-for-tat between the two countries.
The trade spat began in 2024 when Canada imposed a 100% tariff on Chinese electric vehicles, steel, and aluminium. China responded to this firing shot in March, placing tariffs on a range of agricultural imports from Canada, including canola seeds.
The latest uplift to the canola duty is significant for the sector.
"With Canadian canola seed exports to China valued at nearly C$5 billion in 2024, the tariffs will have a devastating impact on the agricultural sector, particularly in the prairie provinces of Saskatchewan and Manitoba. This places immense pressure on the Canadian government, with critics like Saskatchewan Premier Scott Moe arguing that Ottawa is sacrificing a vital Western Canadian industry to protect nascent Eastern industries," says Kevin Ford, FX & Macro Strategist at Convera.
Canada meanwhile continues to negotiate with the U.S. on trade tariffs, ensuring an enduring source of uncertainty for Canada endures on the trade front. This uncertainty will hang over businesses and consumers, thereby proving a headwind for the economy.
Nevertheless, this latest thrust of CAD weakness likely has more to do with the strong selloff in the U.S. Dollar underway in global FX.
Regular readers will be aware of the strong linkage between the USD and CAD exchange rates, meaning the likes of GBP/CAD and EUR/CAD will track moves in GBP/USD and EUR/USD closely.
A renewed bout of USD weakness - details of which can be found here - is therefore having a material impact on CAD:
Above: GBP/CAD at daily intevals.
Developments take the Pound to Canadian Dollar exchange rate (GBP/CAD) up to 1.8673 at the time of writing midweek; putting it on a key graphical resistance line.
It's now at an approximated area of interest for the market; a credible upper-bound to a trading range in place since March. The area around 1.86730 is where gains stalled in March, April and May.
Those watching GBP/CAD should be wary of a period of consolidation evolving around here, and then a potential dip lower again, a sign that the range highs hold. Note that the RSI in the lower panel of the chart is about to touch 70, which would trigger an overbought condition, that could also invited tactical selling interest.
However, a break above here, followed by some positive daily closes, would signal a strong breakout is evolving, and new 2025 highs would then beckon.