USD/CAD clings to gains above 1.33 as oil drops sharply on escalating trade tensions

• WTI drops below $54, erases more than 3% on the day.  
• China retaliates with tariffs on $75 billion worth of US goods.
• Trump says he will respond to China, 10-year US T-bond yield drops more than 4%.

After dropping to a fresh daily low of 1.3275 in the early trading hours of the American session, the USD/CAD pair reversed its direction with the commodity-sensitive Loonie coming under renewed selling pressure due to the sharp fall witnessed in crude oil prices. As of writing, the pair was up 0.1% on the day at 1.3315.

Earlier today, the data published by Statistics Canada showed that  retail sales in Canada remained unchanged on a monthly basis in June following May’s 0.2% decline and beat the market expectation for a fall of 0.1% to provide a boost to the CAD.

All attention on US-China trade conflict

However, after China announced that it will be retaliating by introducing new tariffs on $75 billion worth of US imports triggered a strong reaction from Donald Trump and revived fears of a prolonged trade war. With the initial market reaction, trade-sensitive crude oil prices fell sharply with the barrel of West Texas Intermediate dropping below the $54 mark with a daily loss of more than 3% and caused the Loonie to weaken against its rivals.

US President Donald Trump in a Twitter thread said that the US doesn’t need China and added that they would be “far better off” without China. “I will be responding to China’s tariffs this afternoon. This is a great opportunity for the United States,” Trump tweeted out.

On the other hand, the Greenback struggled to find demand as investors started to price a higher probability of the Fed being forced to make an aggressive rate cut in September. The US Dollar Index, which spent the week above the 98 mark, lost its traction and was last down 0.45% on the day at 97.77, allowing the pair to  limit its losses for the time being.

Technical levels to watch for