The US dollar continued its fall against the Canadian dollar on Monday after the US and China announced they reached an agreement on a phase-one trade deal.
Combined with Johnson’s win in the UK, this eased two key risks for investors heading into year-end and support risk-on flows, putting downward pressure on the US dollar. The Canadian dollar has been pulled along by strengthening risk currencies and higher energy prices, with Brent crude up around 0.78% at the time of writing.
Nevertheless, while a phase-one deal will help steady the relationship between the world’s two largest economies, the deal didn’t address industrial policies nor the rising competition in the 5G technology between the two sides, or China’s presence in the South China Sea.
Although the deal averted new tariffs on Sunday and reduced the rate on a number of existing tariffs, it still leaves an import tax of 25% on $250 billion in products and a 7.5% tariff on $120 billion in other goods. The text of the agreement will likely be available in early January.
Regarding economic indicators scheduled for today from the US and Canada, the report on foreign securities purchases showed a net inflow of funds in the Canadian economy of more than $9 billion in October, which represents the largest inflow of funds since January. The influx of foreign funds can also underpin the Canadian dollar in the mid-term.
In the United States, the Empire State Manufacturing Index came in at 3.5 in December, well below market forecasts of 5.1. The headline report of today was the US Flash Manufacturing PMI, which missed forecasts of 52.6 points only slightly by coming in at 52.5 in December.
From a technical standpoint, the USD/CAD pair is triggering a bearish H&S pattern that projects a profit-target at the October 29 low of 1.3042. As of 2:50 p.m. London time, the pair traded at 1.3135.
