USD/CAD rises toward 1.35 as escalating geopolitical tension weighs on oil

• Escalating geopolitical tensions weigh on commodities on Monday.
• US Dollar Index clings to small gains above 97.50.
• Coming up: Speeches by FOMC members and BoC Governor Poloz.

The USD/CAD pair rose sharply in the early Asian  session on Monday  as markets reacted to President Trump’s remarks over the weekend on the trade conflict with China. After advancing to a fresh 10-day high of 1.3494, the pair has gone into a consolidation phase and was last seen trading at 1.3477, 0.41% above last week’s closing level.

Touching on the trade talks with China in a Twitter thread, Trump said that tariffs on Chinese goods were set to increase to 25% from 10% on Friday and added that he wouldn’t let China renegotiate the deal. Commenting on Trump’s comments, “We think Trump may be emboldened by the strength of the US economy and firm US equities. As such the threats could amount to a negotiating ploy,” TD Securities said.  “The immediate reaction has been for China’s delegation to reportedly delay or cancel its trip to Washington.”

Resurfacing concerns over a long-lasting trade war reminded investors of its potential impact on the crude oil demand outlook and weighed on the commodity. Following Friday’s modest recovery, the barrel of West Texas Intermediate turned south and dropped to its lowest level since early April at $60.02, hurting the demand for the commodity-sensitive loonie.

On the other hand, the greenback seems to be taking advantage of the risk-averse atmosphere on Monday with the US Dollar Index posting small gains near 97.60.

Later in the day, FOMC members Harker and Williams as well as Bank of Canada Governor  will be delivering speeches. There won’t be any macroeconomic data releases neither from the U.S. nor Canada.

Technical levels to consider