USD/CAD: Trade Deal Weighs On US Dollar

The US dollar declined versus the Canadian dollar for the third consecutive week last week. The US dollar Canadian dollar exchange rate slipped 0.7% closing the week at 1.3178. The US dollar is slipping lower in early trade at the start of the new week.

The US dollar declined across the previous week following a more dovish than expected Federal Reserve and following the US and China agreeing a phase one trade deal. The Federal Reserve kept monetary policy unchanged as was broadly expected. However, the Fed also insisted that it would not consider hiking interest rates until there was a substantial and persistent increase in inflation. Federal Chair Jeremy Powell’s more subdued tone sent the dollar lower.

The other major event last week for the dollar was the phase one trade deal between US and China. The US agreed to reduce tariffs on $150 billion of Chinese imports to 7.5%. However, 25% tariffs will remain on $250 billion worth of Chinese imports. Meanwhile China has agreed, among other points, to increase agricultural purchases from the US, although exact figures are lacking.

Whilst this week sees the release of PMI data, industrial production, jobless claims and housing data, its trade news that has the greatest potential to move the markets. If the deal is considered to be beneficial to US economy the US dollar will receive a boost. However, the lift will be less against the Canadian dollar than most other currencies as the Canada benefits from being a resource producer and ad the largest trading partner to US.

Canadian Dollar Boosted By Trade Deal

News of the US — China trade deal helped strengthen the Canadian dollar in the previous week. US crude oil pushed 1.3% higher on the improved demand outlook as the trade cloud cleared. The commodity sensitive Canadian dollar pushed higher.

Bank of Canada Governor Stephen Poloz also boosted demand for the Loonie last week. In a speech on Thursday, Stephen Poloz said that the recent weak labour market reading was unlikely to weigh on future monetary policy decisions. After particularly poor labour market data, these comments eased investor nerves.

Looking ahead inflation figures on Thursday will be the central focus of Canadian dollar investors, along with the price of oil.

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