Euro’s surge against Canadian dollar tests multiyear high
Following a period of volatility, the EUR/CAD cross has whipsawed dramatically. After touching a 2025 high of 1.613, it plunged to a two-month low of 1.576 in the wake of a U.S.-EU trade agreement widely seen as a win-lose deal. The pair has since recovered, surging above 1.60 after a U.S. jobs report sparked speculation of a September Fed rate cut, pushing the cross toward 1.614, a level not seen since March 2018.
Year-to-date, the Canadian dollar has fallen 7.3% against the Euro, with the cross pushing toward new highs above 1.61 over the past nine months. The combination of weak Canadian economic data and a resurgent Euro is driving the cross toward short-term overbought conditions. Traders are now watching for upcoming U.S. economic data and Federal Reserve Chairman Powell’s comments at Jackson Hole on August 21 for further direction.
For now, the Euro’s broad strength continues to put pressure on the Canadian dollar, as concerns over trade and fiscal-driven growth challenge Canada’s economic outlook. While a significant portion of cross-border trade with the U.S. is exempt from tariffs under CUSMA, the chances of securing a new deal before year-end are diminishing. Meanwhile, sectoral levies on copper, along with existing tariffs on lumber, steel, aluminum, and autos, continue to weigh on the Canadian economy.
Key technical levels for the pair include support at 1.597, 1.593, and 1.587, with resistance at 1.613 and 1.614. The Daily Relative Strength Index (RSI) currently sits at 60, below the overbought threshold of 70. The 200-hour moving average at 1.598 indicates an upward short-term bias, as the price is trading above its key moving averages.
Euro rides the policy gap
EUR/USD jumped towards a 2-week high on Tuesday, bolstered by the mixed US inflation report that failed to derail the market’s dovish Fed narrative. At the same time, money markets have pared wagers on future interest rate cuts by the ECB ever since President Christine Lagarde that officials have scope to pause their cutting cycle after holding rates steady at 2% last month. As such, the euro is benefiting from growing policy divergence between the ECB and the Fed.
That said, eurozone sentiment data is flashing warning signs. Germany’s ZEW survey for August showed a sharp deterioration in both the current situation (from -59.5 to -68.6) and the expectations gauge (from 52.7 to 34.7). While the ECB typically incorporates activity surveys into its policy outlook, the ZEW alone won’t move the needle. But if upcoming Ifo and PMI readings echo this weakness, September could bring renewed dovish dissent – especially with inflation still subdued across the bloc.
For now, though, the euro’s momentum is more about dollar softness than euro strength. The dollar index is down around 2% month-to-date, and EUR/USD has reclaimed ground above its 50-day moving average. Technicals are turning constructive, and real rate differentials continue to tilt in favour of the euro.
Geopolitical noise – particularly around Russia -U.S. tensions – remains a background risk but hasn’t materially dented euro sentiment. With ECB communication on pause through August, the path of least resistance for EUR/USD remains higher, at least until fresh eurozone data or Fed signals shift the narrative.
Trade war heats up as China slaps tariffs on Canadian canola
A trade dispute between Canada and China has intensified with Beijing’s announcement of a 75.8% preliminary anti-dumping tariff on Canadian canola seed exports, effective this Thursday. This action is the latest in a series of retaliatory measures that began after Canada imposed a 100% tariff on Chinese electric vehicles, steel, and aluminum in late 2024. In March 2025, China struck back with duties on Canadian canola oil, peas, and pork. This newest tariff on canola seed, China’s largest agricultural import from Canada, now effectively closes the market to a key Canadian commodity.
The financial fallout is significant. 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. The Canadian government and industry reject China’s dumping claims, viewing the tariffs as a political tool to punish Canada for aligning with broader Western trade policies.
For Canadian farmers, the timing is particularly brutal, as many are just beginning the harvest season. The sudden market closure has already caused a drop in prices, creating immediate financial distress and uncertainty. The Canola Council of Canada has been unequivocal in its statement that the dispute is “a political issue that requires a political solution,” a sentiment echoed by other agricultural groups. While the long-term strategy for Canada involves diversifying its export markets, replacing a buyer as large as China in the short term will be extremely difficult, leaving the industry highly vulnerable.
From Beijing’s perspective, the tariffs are a justifiable response to Canada’s own protectionist measures. China’s Ministry of Commerce asserts that its anti-dumping probe found Canadian canola receives government subsidies that harm its domestic market. This action aligns with a broader Chinese strategy to counter what it sees as unfair trade policies from Western nations and to use its market power to pressure countries into compliance. While China may face a short-term challenge in replacing the volume of Canadian canola, the move demonstrates its willingness to weaponize trade to achieve its geopolitical objectives and reduce dependency on a single supplier.
Sterling breaks out as Fed softens, BoE stands firm
The pound had a strong session yesterday, rising against both the dollar and the euro after the UK jobs report showed a smaller-than-expected drop in payrolls last month. While the broader picture still points to a softening labour market, signs that the pace of loosening may be easing helped reinforce the hawkish tone from the Bank of England the previous week – despite its 25-basis-point rate cut. It may be that the adjustment to higher labour costs – driven by the rise in employer National Insurance contributions in April – has now been largely absorbed.
GBP/USD rose over 0.60% yesterday and is up more than 2% month-to-date. The Fed’s increasingly dovish tilt stands in stark contrast to the BoE’s: while markets are pricing in more than two cuts for the former, less than a 70% chance of a cut is priced in for the latter by year-end.
The pair broke through resistance at 1.3450 – a level that had been tested repeatedly in recent days – propelled by a tamer-than-expected U.S. inflation report. With recent policy rate developments from both countries now offering stronger fundamental support to sterling, the pair appears more comfortable in the 1.35 zone, which is likely to establish itself as a new support level going forward.
The pound now eyes 1.36 but awaits tomorrow’s quarter-on-quarter GDP figures and industrial production before making a move, while today it consolidates at the base of the 1.35 zone.
Conflicting data for Banxico
A strong Q2 GDP figure for Mexico complicates the picture for Banxico, as it contrasts sharply with the recent signs of industrial weakness. While the central bank is facing pressure to stimulate the economy, the overall growth data gives it reason for caution.
According to data from INEGI, Mexico’s industrial output contracted for a third consecutive month year-over-year, falling -0.4% in June. This was primarily driven by deep declines in the mining sector, which shrank -8.6%, and utilities, down -3.7%. This uneven slowdown, where commodity-based sectors are in steep decline, has created significant headwinds for the economy, pushing the total industrial output into negative territory and signaling a clear soft patch.
However, this industrial weakness is being offset by resilience in other parts of the economy. The latest preliminary figures for Mexico’s Q2 2025 GDP surprised to the upside, with the economy expected to grow 0.7% in the second quarter. This growth is largely driven by the services and tertiary sectors, which include tourism and retail, and has proven to be more robust. The GDP figure, being a broader measure of economic activity, suggests that while some areas of the economy are struggling, overall demand and output remain stronger than a focus on industrial data alone would imply.
This conflicting data presents Banxico with a more complex challenge for its monetary policy. While weak industrial production supports the case for rate cuts to stimulate the economy, the stronger-than-expected GDP growth provides a counterargument for caution. The central bank must now weigh the signs of a slowing industrial sector against the surprising resilience of the broader economy. This makes the path forward for future rate cuts less certain and will force Banxico to pay close attention to other key indicators, particularly inflation, before making its next move.
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.ve a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
