The Canadian dollar started weakening yesterday against many of its G10 rivals as investors became worried over the heightening US-China trade tensions, despite the release of bullish economic data. Notably, the contraction of the economy midway through the first quarter is also keeping the loonie slightly bearish even though the currency remains in a positive territory so far for this year. In the past 24 hours, the USD/CAD has rallied from 1.3425 to 1.3500 before consolidating at 1.3470 levels.
On the economic front, investors received upbeat retail sales data. According to Statistics Canada, retail sales grew 1.1% in March, from 1% in the previous month. Automobile sales jumped 1.7% in March, from 0.7% in the earlier month. Wholesale trade surged 1.4% in March, an increase from a weak 0.2% in February. All these numbers surpassed analysts’ estimates.
Despite the release of positive data, the Canadian dollar was unable to gain against the greenback and other major currencies as the investors were concerned about the ongoing trade war between the US and China.
As Canada is basically a commodity export-oriented economy, a slowdown in global capital or trade immediately affects the country, which is already running a current account deficit.
The country’s economy is already struggling to expand at a brisk pace. In February, the country’s economy contracted 0.1%, and there are no indications of a recovery in the months to come.
In addition, the sharp decline in crude oil prices is also keeping the loonie weak. July West Texas Intermediate (WTI) crude futures fell sharply by 5.91% or $3.63 to close at $57.80 per barrel on the NYME (New York Mercantile Exchange). To the currency’s respite, natural gas prices (July futures) increased 1.77% or $0.045 to $2.59 per million British thermal units (Btu).
The month will end with the monetary policy meeting by the Bank of Canada, the release of first-quarter current account data, and average weekly earnings data by the labor market.
The political developments and a sharp decline in crude oil prices are expected to keep the Canadian dollar weak in the days to come.
The USD/CAD price chart indicates that the pair has broken above the resistance at 1.3425, which will now act as a support. The currency pair is moving within the ascending channel, while the stochastic indicator is in the bullish zone. As a result, we can expect the currency pair to move up in the short-term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
