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My understanding was Canberra is founded under the British/Australia with the federation, but the location itself was populated by the locals there already and inhabiting that exact location. So it's not so much that it never existed then... Just that it never existed at the start of the game officially as Canberra. But Canberra itself gets it name from the Nganbra tribe from poor British interpretation of how to spell their name.
Technically when you federate Canada, we should be able to also separate Nova Scotia out of New Brunswick as its own state and even add Prince Edward Island. PDX even added in West Virginia even though it doesn't show up until a little after the game start period. So it's just hit or miss in some areas where they nailed the historical accuracy in favor of keeping gameplay smoother.
Best guess? HPM (Victoria 2 mod) had it that way and paradox copied them.
Your understanding is wrong. Canberra as a city was designed and built following federation in 1901, even had an international competition for the design of the city. There was no pre-existing settlement there. This is but one of many errors paradox have made w/ Australia - they can't even spell Dubbo, Armidale, etc.
There was historically a significant level of conflict and competition between the various colonies - even our rail lines did not match across colonial borders. As it is depicted in the game is nowhere near historically accurate.
The conflict with colonies in Africa was also over a variety of Dutch and British sub colional powers and you do see that at the start of the game (Tasmania, New South Wales, West Australia etc). Just the AI isn't the greatest in the game yet, and the devs need to add more diplomatic play options that can impact colonial domains under GB. For example Upper and Lower Canada had several wars with each other before Canada's founding but you can't replicate that in game because they're all under the GB flag.
It's actually the Ngunnawal people, and while they 'resided in the area', there was no settlement. That would be like saying the Kamilaroi or Wiradjuri inhabited an area therefore it was a settlement... Kamilaroi land extended from north of Dubbo up to Queensland, Wiradjuri from the Victorian border to Dubbo. Massive tracts of land the size of European nation states - not single settlements, a claim that also does not align with Indigenous culture or traditional lifestyles. Canberra is also a Ngunnawal word, not a "British" word.
The Ngunnawal people were a diverse and wide group of tribes and the Nganbra tribe is the one specificc to the Canberra area that belongs to the larger Nguunawal tribes. It's like how you can say the Algonquin tribes reached all across North Eastern Canada and USA but if you break down the specific regions within these geographic areas, the smaller tribes go by their own names and feature their own culturally unique features. The big name Algonquin has to do with the fact that so many tribes in the region came together under their own type of constitutional federation when they came across the early colonists from Europe.
Another example is Cree. That covers a wide variety of native American populations, but the specific tribe from the area I am from were called Pikani (Pegan by the white man) and their other white man name, Blackfoot accounts for a slightly wider range of tribes from the same broad geographic area.
While interesting, that is beside the point. At the game's start date there is no settlement called Canberra. There were perhaps a few hundred people in the whole region. The 1921 Census only records 2572 people in the Capital Territory (including Jervis Bay).
One look at how Australia was depicted at the start date turned me off this entire game.