Understanding the Canadian Dollar’s Performance
The Canadian dollar also known as loonie has lost ground against the most of the major currencies in 2025 through June. For example, the USD/CAD has risen from mid 1.34s to 1.378-1.38 area, while EUR/CAD punched through 1.48 in mid-June, a level last seen since the height of Europe’s energy crisis in 2022. With weakening in the loonie also seen in GBP/CAD, the question that poses itself is, why is Canada’s currency weakening when headline inflation is falling, crude oil seeming to have found a floor, and global risk sentiment appearing to improve (at least on paper). We will take a look at the Canadian dollar from both a fundamental and technical viewpoint and provide different appraches for market participants based off of recent findings and developments.
Domestically, Canada’s fundamentals have shifted from ‘good enough’ to ‘problematic.’ The country’s trade war with President Donal Trump is arguably the regions largest threat as also expressed by RSM Canada economist Tu Nguyen. Manufacutures have and are continuing to scale back on hiring, while consumers spend less amid forecasts of higher good prices of imported shipments. This result is also seen in retail sales as flash estimates point to a 1.1 percent contraction for May 2025 from the month prior. This result is a signal that tariff related “pre-buying” is reversing fast.
USD/CAD Weekly
USDCAD weekly chart Sigmanomics, All Rights Reserved
The greenback versus the loonie tested and rejected what appears to be a triple top at the 1.4650 back in February 2025. Since then the pair has come under pressure, with price action slipping below its rising trend line that that developed back in May 2021. In what appears to be a 5 wave Elliott wave move lower, traders should not rule out a possible 3 wave retracment higher before the larger bearish trend resumes while below 1.42.
Even allowing for the Fed’s projection of two BPS cuts in the second half of 2025, the rate differential favors the greenback. Regarding Trumps on-again-off-again tariff tango, import levies raise Canadian export uncertainty, hurting its sectors such as autos, metals, and lumber. In all, with oil under pressure and the Bank of Canada signaling patience, USD/CAD dips are a buying opportunity for the current fundamental picture. A break above the 1.38-1.39 area would require either a deeper oil shock or the BoC unexpectedly cutting rates before the Fed.
EUR/CAD Weekly Chart
Sigmanomics, All Rights Reserved
EUR/CAD broke above a clear ascending triangle back in March 2025 has not looking back since. As this breakout seen a spike higher, caution is advisesd of a retracement lower especially in light of bearish weekly RSI divergence. Daily points to closely watch include 1.5536 and 1.548 respectively.
GBP/CAD Weekly Chart
Sigmanomics, All Rights Reserved
GBP/CAD continues to march higher its a 45 degree rising channel. Similar to the EUR/CAD, the pair is witnessing bearish weekly RSI divergence. While above trend line support, bias is clearly topside, but a slip below floor will quickly shift our technical viewpoint in favor of loonie. If the latter occurs, targets lie at 1.70.
The bottom line is that Canada’s cyclical story is deteriorating faster than its peers – the central bank if boxed in and external variables such as oil, geopolitics and tariffs are weighing. Until the domestic economy regains its footing or the global weather calms, more of the same picture is likely to be painted. For the most part, technicals also agree with the fundamental picture.
