USD/CAD: Holds earlier gains ahead of the US-China trade talks

• USD/CAD extends prior rise to 1.3260 during early Asian trading on Thursday.
• The US President’s welcome comments over trade and the government shutdown have been a major contributing factor towards the pair’s recent upside.
• Two-Day trade talks between the US and China will provide fresh guidelines to near-term market movement.

The Canadian Dollar (CAD) trades around 1.3260 against the USD during initial Asian trading on Thursday. The USD/CAD pair gained traction on Wednesday as the US Dollar registered across the board strength on welcome developments at the US-China trade deal and the US government shutdown. Lack of downbeat inflation from the US also offered help to the greenback. Looking forward, the start of two-day high-level trade discussions between the US and Chinese policymakers in Beijing will be crucial for the global economy.

There have been a slew of positive comments by the US President Donald Trump in recent days that triggered market optimism and strengthened the USD. Notable among them was his readiness to wait for a bit longer than March 01 deadline to levy fresh tariffs on China while expecting a trade deal with the dragon nation. Trump also stood ready to negotiate over his $5 billion funds for the border wall surrounding Mexico in order to avoid another government shutdown. It should also be noted that the monthly reading of the US consumer price index (CPI) remained a little changed to 0.0% from 0.1% consensus during January while beating 1.5% forecast to 1.6% on a yearly basis.

Contrast to the US, the absence of economic catalysts from Canada pushed the CAD to rely on the crude price movements as it is the nation’s largest export item. However, those moves fail to justify the recent uptick in the pair as Crude recovered in the last two days.

Taking a look forward, the two-day high-level trade talks between the US and Chinese policymakers in China will be eye candy for everyone in the market starting from today. The US side discussions will be headed by the trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin while Chinese leaders include President's top aide Liu He among others.

The Treasury Secretary recently sound optimistic about his visit to China, which in turn increases the likelihood of a trade deal between the world’s two largest economies. If at all they fail to come to a conclusion, Mr. Trump seems ready to extend the deadline and visit Beijing during March. Hence, good US-China trade terms are likely to arrive be it early or late, which in turn can add strength to the USD and commodities as well.

USD/CAD Technical Analysis

A descending trend-line connecting the highs marked since January 24, at 1.3310, seems nearby important resistance for the USD/CAD pair, a break of which can propel the present upside to 1.3330 and 1.3375.

Meanwhile, 1.3200 and 1.3155 can offer adjacent supports to the pair prior to highlighting 2019 low around 1.3065.