- USD/CAD extended its sideways consolidative price action on Monday.
- Worsening US-China relations benefitted the USD’s safe-haven status.
- Positive oil prices underpinned the loonie and capped any strong gains.
The USD/CAD pair lacked any firm directional bias and was seen oscillating in a narrow trading band, around the key 1.40 psychological mark through the early European session.
A combination of diverging forces failed to provide any meaningful impetus to the USD/CAD pair and led to a subdued/range-bound trading action on the first day of a new trading week. Concerns about a further escalation in the US-China tensions continued lending some support to the US dollar's perceived safe-haven status.
It is worth recalling that diplomatic relations between the world's two largest economies deteriorated after reports last week indicated that China is planning to impose national security laws in Hong Kong. The US President Donald Trump was quick to react and threatened a strong reaction against the attempt and if the law is passed.
This comes on the back of the recent development, where in the US Senate passed a bill that could block some Chinese companies from selling shares on the American stock exchanges. This, in turn, fueled worries about a major US-China tussle and overshadowed the optimism over the re-opening of economies in some parts of the world.
The negative factor, to a larger extent, was negative by a mildly positive tone around crude oil prices, which underpinned the commodity-linked currency – the loonie. The USD/CAD pair remained capped near 200-hour SMA, which should now act as a key pivotal point for short-term traders amid relatively thin liquidity conditions.
The US banks will be closed on Monday in observance of Memorial Day, leaving the USD/CAD pair at the mercy of oil price dynamics. Later during the US session, a scheduled speech by the Bank of Canada (BoC) Governor Stephen Poloz might further contribute towards producing some meaningful trading opportunities on Monday.
Technical levels to watch
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