The US dollar Canadian dollar exchange dropped lower for a fourth straight session on Thursday. The US dollar declined versus the Canadian dollar ending the session down -0.1% at 1.3154. The pair is advancing in early trade on Friday.
The dollar dropped sharply lower overnight amid improved risk sentiment. Following a landslide Conservative win in the UK elections, the pound and the euro rallied, and Brexit risks receded dragging the US dollar lower.
Prior to the UK election results, the US dollar had received a boost late in the US session after news broke that the US and China had agreed a deal in principal, which was awaiting President Trump’s sign off. The announcement came following a tweet by Trump saying that the two sides were very close to signing a big trade deal with China. Reports indicate that the terms of the deal have been agreed but the legal text has not yet been finalised.
The phase one pact is expected to reduce tariffs that have already been implemented and delay the tariffs which are due to take effect on Sunday. The Wall Street journal reported that the US was planning to cut tariffs on $360 billion worth of Chinese imports by 50%.
The outcome of the US — China trade dispute is a key determinant of economic growth in the US in 2020. Whilst recent data has shown that the labour market and consumer sector remain resilient, the manufacturing sector has experienced a deep slump. A trade deal could see the US manufacturing sector recovery relatively quickly putting the US economy on a firmer footing.
Oil Rally Supports Canadian Dollar
Oil rallied over 1% in the previous session, lifted by trade deal optimism. Crude oil pushed higher on the hope that global oil demand would improve with an end to the US — Sino trade dispute. The rally in oil supported the commodity sensitive Canadian dollar.
Bank of Canada President Stephen Poloz also hit the wires. However, he focused on the long term out look rather than near term. He expects global interest rates to remain low for years to come. His comments had little impact on the Canadian dollar.
There is no high impacting Canadian data due for release. Canadian dollar investors will continue to focus on trade headlines.