Despite optimism from the NAFTA/USMCA deal, the loonie hasn't taken flight
The low for USD/CAD today touched 1.2814 before price bounced back higher in the past few hours to settle around 1.2840. Of note, there is a support region area near 1.2820 that has helped to limit previous falls in the pair since last year.
And right now, that is the area buyers are leaning on to stall the drop seen in USD/CAD so far today. The actual surprising thing so far in trading is that the trade deal between US, Mexico, and Canada is failing to generate any profounding optimism across markets.
Asian equities are mixed on the day with the Nikkei leading gains but that owes more to general Japanese stocks sentiment more than anything else. Are markets still worried about Italy? Or have we not seen the true colours in trading sentiment to start the week?
The aussie and kiwi are on the back foot right now both trading near session lows in what has been a quiet start to the week in terms of liquidity and price action. Of note, China is on a week-long holiday so that will contribute to some thinner flows.
It could also be the fact that Chinese data over the weekend weren't very rosy and that may have dampened the spirits of Asian investors too.
But either way, I would expect the loonie to pick up further gains from here as we head towards US trading later. Unless the dollar pulls off a solid rally in European trading, I would expect USD/CAD to move towards a test of the 1.2820 support region once again later.
As with the case previously with NAFTA, the headlines tend to hit during Asian trading and we get a mild move in between that and North American trading. When US traders start coming in, we tend to see the real reaction and big money flows in reaction to the headlines. And I believe that will be the case this time around as well.
As long as price doesn't threaten a move to stay above 1.2900 in European trading, there's good reason to sell USD/CAD on rallies in any price retracement from here. Near-term price bias remains more bearish and unless that changes, the optimism surrounding a NAFTA/USMCA deal will continue to provide further tailwind for the loonie to advance against the greenback and other major currencies.
