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The Loonie rallies following a better mood in the markets after Trump softens his tone on China

CAD - Canadian Dollar

With the lack of local economic data today and yesterday, the Loonie started to follow externals drivers again. The USD/CAD pair falls 0.11 percent this morning (stronger Loonie). The U.S. dollar index is also falling 0.15 percent this morning despite the U.S. equity market being in a better mood following President Trump’s conciliatory tone on the final day of the G-7 summit. Trump mentioned China wants to make a deal, referring to continued conversations with the Chinese over the weekend and it was backed by Mnuchin who said, “…let’s just say discussions went back and forth,” and referring to China Vice Premier Lui He’s comment that he opposed the escalation of a trade war. Also, Trump referred to President Xi as a brilliant man and a great leader yesterday, in spite of previously referring to him as an enemy.

Technically speaking, the USD/CAD broke an uptrend to the downside in yesterday’s trading session, and it has already reached mid 1.32ish, falling from 1.3350 in 3 days from last Friday. It is trading at 1.3233 at the time of this writing. If we see the broader picture, and if it keeps falling, it might find support around the 1.3200 handle. On August 9th and 13th, the USD/CAD pair dipped to 1.3196 and 1.3185 respectively, but strong buyers appeared. If the 1.3200 handle is broken for whatever reason, the next levels to see are 1.3167 and around 1.3150. A robust support though is 1.3125.

Key Movers

There was little reaction in the EUR/USD pair, but the de-escalation of the trade war with China would be enough to push the Euro currency lower. However, BofAML’s Chief China Economist Helen Qiao thinks de-escalation is unlikely, and she now expects the conflict to affect bilateral investment with China rolling out its unreliable entity list targeting U.S. companies. She also feels China will be less obligated to use FX reserves to support the Chinese currency (the Yuan).

Regarding the fundamentals of the Euro currency, Germany’s economy contracted on weaker exports in the second quarter due to escalating trade disputes and waning foreign demand. There was validation of a preliminary gross domestic product contraction of 0.1 percent quarter-on-quarter from April to June after a 0.4 percent expansion in the first three months of the year. The EUR/USD pair is trading at 1.1110 this morning, showing no important changes.

The Australian and New Zealand dollars versus the Greenback were steady after whipsawing Sunday night when both opened at the lowest level since March 2009 and September 2015 respectively. Both currencies rose yesterday as market participants reacted to a series of positive developments in the U.S.-China trade war.

Expected Ranges

USD/CAD: 1.3200 - 1.3283 ▲

EUR/CAD: 1.4639 - 1.4732 ▲

GBP/CAD: 1.6230 - 1.6283 ▲

AUD/CAD: 0.8937 - 0.8994 ▼

NZD/CAD: 0.8420 - 0.8498 ▼