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Market Analysis

Fundamental Analysis: CAD down on Trade and Oil

May 09, 2019
BY Michael Stark

The Canadian dollar has weakened somewhat against most currencies today. More trade tension and small losses for oil drove the movement. However, this afternoon’s data from Canada was also somewhat negative.

USDCAD moved up today to around C$1.349. The euro also made gains to trade above the important area of C$1.51. The Canadian dollar’s losses were bigger against the yen, though, with CADJPY making fresh five-month lows below ¥81.40.

Trade disputes, oil and data act against CAD

More complaints about China and trade from the American President Donald Trump have dominated news in forex markets this week. Throughout the week, Mr Trump has pushed his intention to hike tariffs on Chinese exports to the USA. The increase of 15% on US$200 billion of Chinese goods is due to start from midnight tonight EST.

CAD generally does poorly during periods of political and economic instability. Reasons for this include the country’s dependence on trade with the USA, knock-on effects in the price of crude oil, and Canada’s relatively small economy.

American light oil has been volatile today, but less so than at the start of the week in the immediate aftermath of Mr Trump’s threats. USOIL shows little sign of making a sustained movement back above the key area of $62 for a barrel. It declined sharply from this zone in the afternoon GMT, having briefly made an intraday high of $62.19.

This afternoon’s data was overall somewhat negative for the loonie as well. Canada’s trade deficit in March increased to C$3.21 billion against the consensus for an improvement. Monthly data on the prices of new houses showed that this segment of the property market was flat in March.

Critical data on employment change tomorrow

Markets in general are focusing on the unlikely possibility of the USA and China reaching a trade deal by midnight in Washington. Such a result would be a big surprise that could well drive CAD and various other currencies higher. However, it appears that higher tariffs from tomorrow have mostly been priced in to forex markets.

Probably the most important news tomorrow for the Canadian dollar is unemployment change, due out at 12.30 GMT. The consensus currently ranges from 10,000 to 15,000. If correct, this could give CAD a boost. Canada will also release a range of other employment statistics at the same time, including unemployment and participation rate.

Mixed picture for the loonie tomorrow

Although fundamentals for the Canadian dollar are currently negative, further downside appears to be limited for some pairs. Very strong technical levels on USDCAD and EURCAD are unlikely to be broken unless tomorrow’s news is unusually bad. On the other hand, more losses for CAD against the yen are favorable into next week.

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