Loonie Turns Volatile As US-China Trade Tensions Heighten

Loonie Turns Volatile As US-China Trade Tensions Heighten
May 7, 2019

 

On the first day of the trading week, the Canadian dollar lost ground against most of the G10 currencies in the European session, as oil prices fell on worries over global demand based on the heightening of US-China trade tensions. Overall sentiment turned bearish after the US President Donald Trump threw cold water on revived optimism over a possible trade agreement, vouching to increase duties on Chinese goods. After hitting a ten-day high of 1.3493, the USD/CAD pair reversed trend as CFTC data indicated a decline in the bearish bets against the Canadian dollar. At the time of writing this article, the USD/CAD pair has forfeited all the gains made yesterday to trade at 1.3420 levels.

Trump tweeted Sunday that negotiations toward a trade agreement with China were continuing “too slowly” and that he would increase duties on USD 200 billion worth products from 10% to 25% on Friday. Up to this point, the US has enforced duties on $250bn of Chinese goods, accusing the nation of manipulative business practices. Beijing retaliated with tariffs on US goods worth US$ 110bn, accusing the US of sparking “the largest trade war in economic history.”

Trump tweeted: “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”

Yesterday, Trump issued another tweet that claimed the US to be “losing” $500bn per year on bilateral trade with China. “Sorry, we’re not going to be doing that anymore!” Trump tweeted. Trump further indicated that he would soon target another USD 325 billion of Chinese products with 25% import tariffs. Having imposed duties on billions of dollars’ worth of each other’s products in 2018, the US and China have been discussing and, recently, seemed near to reaching a trade agreement.

Commenting on Trump’s threat, Tom Orlik, chief economist at Bloomberg Economics, said: “It’s possible talks are breaking down, with China offering insufficient concessions, and an increase in tariffs a genuine prospect. More likely, in our view, is that this renewed threat is an attempt to extract a few more minor concessions in the final days of talks.”

Echoing the views of Tom Orlik, Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, said: “I don’t think it was done so flippantly to suggest Trump will not follow through with it, but there is an element of it being a negotiation tactic.”

Regarding profit booking in the market, Luschini said: “These things are used as an excuse for investors to take profits because we have had such an enormous rally and valuations are relatively high and the impetus was on news to continue to be good and obviously this is not welcome news.”

China said a team is still planning to depart to the U.S. on Monday, but did not confirm whether Vice Premier Liu He, China’s leading negotiator, will join the team as initially intended. Tariff danger reignited concerns of a worldwide financial downturn, pushing down crude oil rates.

The West Texas Intermediate crude for June delivery declined to $61.63 a barrel, before ending the day at $62.24, down $0.01 from the prior close. Likewise, the international benchmark July Brent crude, which recorded a low of $68.79 a barrel on ICE Futures Europe, reversed the trend to close at $71.13, down 11 cents from the earlier close.

Meanwhile, CFTC data indicated that speculators are winding down their bearish bets on the loonie for the second successive weak in a row. At the end of April 30th, net short positions have declined to 46,745 contracts, from 47,493 in the earlier week.

The recovery in the price of crude oil and CFTC data on outstanding positions is expected to keep the USD/CAD pair range bound in the short-term.

The USD/CAD pair remains range bound between 1.3380 and 1.3470. The oscillator of moving average has a negative reading. As a result, we can expect the USD/CAD pair to move down further and retest the support level.

CAD - technical analysis - 7th May 2019

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.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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