Pound-to-Canadian Dollar Week Ahead Forecast: A Little More Composed

The Canadian dollar suffered a setback on renewed trade tensions south of the border.

The pound to Canadian dollar exchange rate (GBP/CAD) has risen and regained some composure, having been under the hammer during the course of the previous week.

The pair fell down to the cusp of 1.8550 support before U.S. President Donald Trump hit his social media account to inform us that the U.S. would impose a 100% levy on Chinese imports in retaliation for new Chinese export restrictions placed on rare earth minerals.

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i - Based on average GBP/CAD rate observed in July.

Just when we thought the matter of global trade was largely coming to a close, Trump reminded us that tariffs are an ever-present tool in the geopolitical toolbox that he won't hesitate to utilise.

The FX reaction was strong, with the U.S. dollar slumping and dragging its North American neighbour lower.

A resultant jump in GBP/USD pulled GBP/CAD up alongside, ensuring 1.8550 remains intact as a support area that solidifies the exchange rate's near-term outlook.

Yet, GBP/CAD's recovery appears to have stalled at the time of writing Monday as markets fade the initial reaction to Friday's developments.

Weekend news out of both China and the U.S. regarding the matter provides some reassurances:

"Don't worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn't want Depression for his country, and neither do I. The USA wants to help China, not hurt it!!!" Trump wrote on Truth Social.

"It’s going to be a delicate dance," said U.S. Vice President JD Vance on Sunday, in a media interview, indicating that negotiations are afoot.

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For its part, China's commerce ministry urged the U.S. to negotiate.

"Comments received over the weekend appear to downplay the risk of trade war escalation," says Antti Ilvonen, Senior Analyst at Danske Bank. "The change in tone suggests to us that there has been backchannel communication between the U.S. and Chinese side over the weekend that points to a deal being possible at the end of the month and that the tariffs will not go into effect."

A fading of those Friday gains in GBP/CAD are therefore on the cards, and this could see a decline back towards 1.8850 in due course.

However, muscle memory means the market won't rush to reverse that recent move and chastised traders will be wary of any further negative headlines on the matter.

In short, there's enough trade war premium back in the market to keep GBP/CAD in a consolidative mood during the coming five days.