The US dollar slumped to its lowest level versus its Canadian counterpart for almost seven weeks on Monday. The US dollar Canadian dollar exchange rate rebounded of the low of 1.3113 to close the session just a touch lower on the day at 1.3163. The pair is advancing in early trade on Tuesday.

Rising risk appetite weighed on demand for the dollar at the start of the week. Manufacturing data and retail sales data from China were stronger than analysts’ expectations, easing fears over a slowdown in the world’s second largest economy. The impressive data combined with last week’s news of a first phase trade deal, despite the absence of important details, has served to boost risk sentiment. Investors sold out of the safe haven dollar.

US private sector activity data had a limited impact on the dollar on Monday. The manufacturing pmi ticked lower to 52.5, below the 52.6 forecast. However, the dominant US service sector saw an above expectation expansion of 52.2. These figures show that the all-important service sector is still performing well, whilst the US manufacturing sector is holding on in expansion territory despite a sharp contraction a few months earlier.

Investors will now look to a barrage of US data due for release today. The most closely watch releases will be manufacturing and industrial production data. Analysts are expecting to see a solid rebound in both manufacturing and industrial production. Should this materialise the dollar could advance.

Canadian Dollar Drifts After Stronger Start To Week

The Canadian dollar strengthen in early trade on Monday as the price of oil advanced amid an improved demand outlook following the first phase trade deal. West Texas Intermediate closed the session above US$60 per barrel. Canada is a major exporter of commodities so its economy could benefit from an improved outlook to global trade.

Canadian home sales increased 0.6% month on month in November. The Bank of Canada has previously pointed to the Canadian housing market as a source of resilience in the Canadian economy. The data helped buoy the Loonie.

There is no high impacting Canadian data due for release until later this week. On Wednesday Canadian inflation will take central stage and retail sales on Friday.


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