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US Dollar Canadian Dollar (USD/CAD) Exchange Rate Rallies as G20 Summit Approaches and Oil Prices Stay Low

USD/CAD Exchange Rate Rallies ahead of G20 Summit

The US Dollar Canadian Dollar (USD/CAD) exchange rate rallied this morning as trade tensions between the US and China seemed to escalate, with the outcome of the G20 summit not looking positive.

The Canadian data released this afternoon caused the USD/CAD exchange rate to slump, as the quarterly gross domestic product annualised for the third quarter was as predicted, and rose by 2%, which is still higher than the prediction made by the Bank of Canada but still represents a slip from the last quarter’s 2.9%.

At the same time, the Canadian raw material price index showed a drop from -1.0% to -2.4%, allowing USD to strengthen in relation to CAD.

USD/CAD Exchange Rate Pushes Back Despite Poor US Pending Home Sales

Just days before the G20 summit, US President Donald Trump stated that the planned tariffs on Chinese imports would rise, telling reporters he felt he had no choice in the matter:

‘I don’t know if I want to do it […] I like the deal we have now.’

This is suggestive of an escalation of the trade tensions rather than the cooling that seemed possible previously, and is likely to prompt investors to seek out safe-havens such as USD.

Unemployment data released in the US yesterday showed continuing and initial jobless claims had risen.

Initial jobless claims for November rose by 10,000 despite predictions this figure would drop, and continuing jobless claims rose to 1.71m.

US pending homes sales dropped by -4.6% in October to a four-year low, although the effect on USD was not discernable.

USD/CAD Exchange Rate Pressured by Dovish US Fed Comments

Wednesday saw the Canadian Dollar rally against USD on the back of dovish comments made by Federal Reserve Chair Jerome Powell, as he appeared to signal the bank was considering pausing the pace of rate hikes in 2019.

Despite a 13-month low in the price of oil, as well as a smaller-than-expected Canadian current account deficit in its third quarter, the ‘Loonie’ was still able to make some gains against USD.

USD/CAD Exchange Rate to find Support in Heightened US-China Trade Tensions?

The USD/CAD exchange rate is likely to see more movement in the coming days as the G20 Summit progresses.

In particular markets will be assessing whether or not the US and China can defuse trade tensions.

It seems the most likely outcome is that the concessions Chinese President Xi Jinping will offer Donald Trump are not going to be enough to appease the US President, which could see him slap Chinese imports with the 10 to 25% tariff as planned, bolstering the US Dollar as the uncertainty sends investors to the USD safe haven.

For the oil-sensitive ‘Loonie’, crude prices remain influential, with Jackie Forrest, an analyst with the ARC Energy Research Institute in Calgary stating:

‘If OPEC doesn’t make a cut and if global prices begin to fall, that will just push our prices down further, putting more pressure on Canadian producers. It’s very consequential to the Canadian industry.’