Canadian Dollar Gains Traction Against The US Dollar Due To Strong Economic Indicators
The Canadian dollar (CAD) gained momentum against the US dollar (USD) on Tuesday on the heels of strong economic data on the Canadian side.
The Canadian wholesale sector grew by 1.7% over the past month which was a surprise to investors considering that it rose by a huge margin past the forecasted 0.2%. The strong economic data was welcome news for the Bank of Canada (BoC) which aims to maintain its current interest rate at 1.75%.
The strong economic data influenced the 0.11% surge that the CAD experienced against the USD on Tuesday. The USD may have also been held back by subdued oil prices as well as reports by President Trump’s administration suggesting that there will not be a major trade agreement to be announced during the G20 summit.
The US president was supposed to meet up with Chinese President Xi Jinping to discuss the trade situation between the two countries. The anticipation for the meeting influenced low trading volumes for traders that invest in the dollar as they took a cautious approach.
To top it all off, the U.S. recently released disappointing statistics for home sales, consumer confidence, and manufacturing, thus putting the USD under more pressure. However, the USD did demonstrate a better performance after Federal Reserve Chairman Powell released comments that were less dovish than in the previous week.
China disrupts Canadian meat imports
The trade relationship between China and Canada, especially with regards to meat imports into China, may also have caused a significant impact on the USD/CAD exchange rate. China recently blocked the importation of all types of Canadian meat. This was after Chinese authorities found ractopamine residue in imported pork.
The Chinese authorities also discovered faux veterinary health certificates for imported meat. This situation has tarnished the relationship between China and Canada and also negatively impacted the USD/CAD performance. However, its impact is not as much as that of other major issues such as the slowed global economic trade, the U.S.-China trade war, and other geopolitical issues.
The technical performance
The USD/CAD price performance has overall been bullish since Sunday with the price going as low as 1.31096. The current downward momentum means that the price of the currency pair is rapidly approaching the 1.3100 support level and the 1.3070 level which represents the lowest price point for the month of February.
The currency pair’s performance indicates that the Canadian dollar has been growing stronger against the USD. This is no surprise given the negative market data and cautious stance by investors.
Despite the overall bearish performance in the past days, there have been moments where the USD seemed to be gaining its foothold against the CAD. However, its attempts at recovery on Monday and Tuesday were shot down by the unappealing market data.
Looking forward, the direction of the trade relationship between China and the U.S, as well as the global trade situation will affect the performance of the USD/CAD currency pair. For example, the end of the trade war might encourage traders to invest more in the USD, thus helping it to get back on its feet.