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The Loonie was a top performer this week thanks to forex traders focusing on a hopeful U.S.-China trade negotiations story to get bullish on oil and higher-yielding currencies.

Overlay of CAD Pairs: 1-Hour Forex Chart
Overlay of CAD Pairs: 1-Hour Forex Chart

Canadian Headlines and Economic data

Major Market Drivers for the Canadian Dollar

Global risk sentiment and counter currency movements were likely the main contributing factors to the Loonie’s relative performance this week as the economic calendar and headlines from Canada  were bare through the Thursday session.

For a broad rundown of what drove global risk sentiment, check out my review of this week’s risk sentiment drivers and broad market behavior in my Japanese yen weekly review here. But in short, after a mixed start to the week, broad risk-on sentiment picked up as U.S.-China trade negotiations resumed in the U.S. on Tuesday, and headlines related to the situation through out the week seemed to support the idea that progress towards a deal is happening rather than breaking down to an all out trade war. This included the possibility of a deadline extension for a deal, an outline of a deal is starting to be put together, and China committing to buying $1.2 trillion of U.S. goods.

The Loonie began to go into bull mode in the Tuesday afternoon U.S. session after U.S.-China trade updates began hitting the wires, spending Wednesday and much of Thursday in the green against most majors. Oil (Canada’s main export) also took off higher during this time, which likely supported the Loonie as well:

Overlay of CAD Pairs & Oil (Black Line): 1-Hour Forex Chart
Overlay of CAD Pairs & Oil (Black Line): 1-Hour Forex Chart

The Thursday trading session was when we got our first Canadian data and headlines of the week (improved ADP non-farm employment change and positive wholesale sales data), but they didn’t seem to be the main drivers of the Loonie as CAD pairs fell during the U.S. trading session.  It was more likely the weak U.S. economic data released that morning returned trader’s focus to the weak global economic data that’s been released in the past few months, sending traders back into risk-off mode, which is not usually that great for the Loonie or oil as can be observed in the one hour overlay chart above of CAD pairs and WTI crude.

It should also be noted too that Bank of Canada Governor Poloz spoke on monetary policy at the Chamber of Commerce of Metropolitan Montreal mid-U.S. session on Thursday, signaling that the BOC was in no rush to hike, which possibly contributed to the bearish moves in Loonie pairs on the day.

Unfortunately for Loonie bears hoping for some downside momentum after Thursday’s price action, risk-on sentiment came back charging to lift risk assets on Friday, again off of U.S.-China trade deal updates, and is likely the reason why most CAD pairs ignored the mixed but mostly net weak Canadian retail sales data during the morning U.S. trading session. CAD pairs traded mixed during the release with the Loonie moving mostly higher after the event to end the week solidly beating most of the major currencies.