The Canadian dollar had a roller coaster ride yesterday. The loonie strengthened against the greenback in the Asian and European session based on positive macroeconomic data. However, at the start of Thursday’s trading session, the Canadian dollar has lost all of its gains as the market turned its attention to the US-China trade talks, which are expected to conclude in early May. From a high of 1.3370, the USD/CAD pair dropped to a low of 1.3270, before recovering to trade at 1.3350 levels.
US-China trade talks dominate the Canadian dollar’s trend
According to Statistics Canada, the country’s consumer price index increased 0.3% m-o-m in March, on a seasonally adjusted basis. Without seasonal adjustments, the index improved 0.7%, identical to February, and met economists’ expectations. On a y-o-y basis, the seasonally adjusted CPI rose 1.9%, from 1.5% in February. Likewise, on a y-o-y basis, the median CPI escalated 2.0% in March, while the trimmed CPI climbed 2.1%. Both indices improved by 0.1% point compared to February and both surpassed the average forecast growth rate of 1.8%.
The statistical organization also stated that Canada’s trade deficit narrowed to C$2.9 billion in February, from C$3.1 billion in January. Economists had anticipated the trade deficit to widen to C$3.5 billion. In addition to the economic data, crude oil, which is trading near 2019 high, also contributed to the Canadian dollar’s uptrend against the greenback during the European session yesterday.
While the NYMEX May light sweet crude contract closed at $63.78 per barrel, June ICE Brent crude futures ended the trading session at $72.11/barrel.
Geopolitics also remains in favor of crude oil price rally, with another round of sanctions being considered by the US on Cuba, Nicaragua, and Venezuela. Harry Tchilinguirian, a senior oil analyst at BNP Paribas, said: “The US is stepping up pressure on Iran and Venezuela, the geopolitical environment is supportive.”
The USD/CAD pair reversed the trend after news broke out that the US and China may finalize an elaborate trade agreement in May. High-level officials on either side are planning to conduct two more rounds of negotiations to finalize a deal that would be signed by the US President Donald Trump and Chinese President Xi Jinping. The US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are expected to participate in the meeting in Beijing.
In principle, China has consented to boost the import of US agricultural products, in addition to energy, industrial products, and services, in a bid to narrow the trade imbalance with the US. That guarantee might be included in a preliminary agreement. The USD/CAD pair may turn volatile in the weeks ahead due to news related to trade negotiations and economic data releases.
Technically, the USD/CAD pair is moving within an ascending channel as shown in the image below. The momentum indicator is also rising. However, the pair faces huge resistance at 1.3380 levels. Only overwhelmingly positive news would enable the currency pair to break the resistance. As a result, we can expect the USD/CAD to remain range bound between 1.3380 and 1.3310 in the days to come.
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