USD/CAD holds steady, up little around 1.3770 amid weaker oil prices

• Sliding oil prices undermined the loonie and extended some support to USD/CAD.
• The prevalent USD selling bias did little to inspire bulls and capped any strong gains.
• Friday’s key focus will be on Trump’s response to China’s security law for Hong Kong.

The USD/CAD pair edged higher on Friday, albeit lacked any strong follow-through and remained confined in a three-day-old trading range.

A sharp fall in crude oil prices undermined the commodity-linked currency – the loonie – and turned out to be one of the key factors that assisted the USD/CAD pair to add to the previous day’s modest uptick. In fact, oil prices lost over 3% on Friday and eroded some of its gains from the previous session amid concerns about worsening US-China relations, which overshadowed signs of the global demand recovery.

The uptick, however, lacked any strong bullish conviction amid the prevalent selling bias surrounding the US dollar. The recent optimism over a potential COVID-19 vaccine and hopes of a sharp V-shaped recovery for the global economy continued denting the greenback’s safe-haven status. This coupled with a fresh leg down in the US Treasury bond yields further undermined the USD demand and kept a lid on any strong recovery for the USD/CAD pair.

However, growing worries about a further escalation in diplomatic tensions between the world’s two largest economies might help limit the USD fall and continue lending some support to the USD/CAD pair. The pair, so far, has managed to hold its neck above the 100-day SMA support near the 1.3720 region. Traders are likely to wait for a sustained break below the mentioned support before positioning for any further near-term depreciating move.

Moving ahead, Friday’s key focus will be on the US President Donald Trump’s news conference on China’s move to tighten control over the city of Hong Kong. It is worth reporting that the dragon nation’s parliament on Thursday endorsed a national security law for Hong Kong and investors anticipate a strong US reaction, which could include trade sanctions.

This coupled with the US/Canadian macro releases might further contribute towards producing some meaningful trading opportunities. Friday’s US economic docket features the release of Core PCE Price Index, Personal Income/Spending data and Goods Trade Balance figures, which will be followed by Chicago PMI and revised Michigan Consumer Sentiment Index. From Canada, the monthly GDP report might influence the Canadian dollar and provide some impetus.

Technical levels to watch