USD/CAD: Pair Struggles For Direction In Quiet Start to Week

The US dollar Canadian dollar exchange rate rallied hard across the previous two weeks. However, the pair lacked direction at the start of the new week with both the US and Canadian markets closed on Monday. The US dollar Canadian dollar ended Monday’s session flat at 1.3220. The pair is holding steady in early trade on Tuesday.

The dollar was broadly out of favour versus its peers in the previous session as investors digested mixed messages over the US — China trade deal progress and as they awaited further developments. President Trump denied that he had agreed to gradually rollback trade tariffs already applied, contradicting a Chinese official last week. The mixed messages plus the delayed meeting to sign a deal have heightened concerns that negotiations are stumbling. Despite usually being viewed as a safe haven, the dollar edged lower versus most of its major peers.

Today there is no high impacting US data. Trade headlines will remain the central focus. Investors will also turn to a flurry of Fed speakers ahead of Federal Reserve Jerome Powell’s testimony before Congress on Wednesday and Thursday.

Oil Weighs On Canadian Dollar

With no economic data to digest, the Canadian dollar was being driven by the value of oil. Oil is positively correlated to the value of the Canadian dollar (versus the US dollar). When the value of oil is high, the amount of US dollar that Canada receives for each barrel of oil it exports is high, meaning a higher inflow of dollar for the same amount of Canadian dollars. This boosts the value of the Canadian dollar and vice versa.

The value of oil dropped over 1% on Monday on concerns over the US — China trade situation and fears that OPEC won’t renew production cuts when they meet in December. Not even a report by Reuters confirming that Saudi Arabia’s oil production was 10.3 million barrels per day, in-conformity with OPEC output production cut agreement managed to lift the price of oil.  The lower price of oil dragged the value of the Canadian dollar lower.

With few catalysts in the first half of this week, the Canadian dollar could struggle for direction.

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