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Domestic worries mean CAD is unable to take part in the global relief rally.
Global markets are rejoicing at the news that the U.S. has effectively rolled back its 'Independence Day' tariffs on Chinese imports, putting to bed the worst of the trade war fears.
Both sides have agreed to a rollback for a ninety-day period to allow negotiations towards a concrete trade deal, prompting investors to buy into U.S. assets again, including the U.S. Dollar.
We would have expected the USA's northern neighbour to benefit from the news, owing to the view that what's good for the U.S. is good for Canada, owing to the interconnectedness of the two economies. However, the Canadian Dollar is looking a bit weak here, which hints at ongoing GBP/CAD upside in the near term.
The Pound-to-Canadian Dollar exchange rate (GBP/CAD) trades at 1.8474, which is where we were this time on Friday. In fact, this is a level that has become quite familiar when looking back over the March to May period.
GBP/CAD is above the nine-day exponential moving average, and we think a test of 1.86 could be in prospect this week.
To be sure, while we do think the upside is to be preferred, the CAD will benefit from residual improvements in global trade sentiment and keep Pound Sterling honest.
This is why upside will be limited for the foreseeable future and a retest of 2025 highs at 1.87 is unlikely.
Downside pressures would meet support at 1.83.
Above: GBP/CAD at daily intervals.
The CAD's inability to fire on Monday most likely speaks to concerns that the local economy is already feeling the strain of trade uncertainty and that whatever happens, we won't be returning to a pre-Trump world.
"The Canadian dollar continues to weaken against its major-currency peers as lagging uncertainty effects put downward pressure on interest rate expectations," says Karl Schamotta, Chief Market Strategist at Corpay.
The Bank of Canada will likely remain in 'easing' mode after Friday's Canadian employment release showed the economy added just 7,400 jobs in April, with most of the net hiring coming in the public sector.
This as the labour force expanded by 46,700 workers, which means the unemployment rate rose to reach 6.9%.
Schamotta points out that 33K manufacturing jobs were lost in Ontario alone as trade frictions hit export-sensitive sectors. In fact, without federal election hiring, at least 30K jobs would have been subtracted nationally.
"Some of this weakness could reverse in coming months as major auto plants resume production, but swap-implied odds on a rate cut at the Bank of Canada’s June meeting are holding at around 60%, with a move fully priced in for July," says Schamotta.