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USD/CAD bears move in to contain the corrective attempts by the bulls

  • USD/CAD is losing some bids into the close on Wall Street but the loonie remains out of favour.
  • Oil and shares have been on the backfoot while investors remain concerned over China's economy.

At 1.2824, USD/CAD is higher on the day so far as the commodity sector wobbles as fears about weak earnings and slowing economic growth punctured the recent mini-rally. Shares have been on the backfoot while investors remain concerned over China's economy.

At the start of the week, traders favoured the pledges of more stimulus from China's government but are now more concerned over the prospects of a prolonged lockdown in various regions of the nation that still struggle with the pandemic. "The government's dynamic zero-COVID policy will remain in place through 2022, preventing a return to normalcy and limiting the effectiveness of new fiscal and monetary stimulus measures," warned S&P Global. "Thus, real GDP growth will likely slow from 8.1% in 2021 to 4.3% in 2022." "New geopolitical, financial, or supply-side shocks could tip the world economy into recession."

Additionally, the price of oil is lower over the worries of not only a possible global recession but also China's COVID-19 curbs that have balanced tight global supply and US summer driving season demand. US crude prices have eased to $108.63 a barrel. Subsequently, the Canadian dollar has edged lower against its US counterpart on Tuesday.

As for data, Canadian factory sales rose 1.6% in April from March, largely driven by higher sales of petroleum and coal products, Statistics Canada said in a flash estimate. A separate flash estimate for the same month showed that wholesale trade rose 0.2%.

Overall, CAD could be in a better position compared to other growth currencies such as the antipodeans due to solid growth, commodity exposure, and domestic monetary tightening. However, ''markets are shifting into data-watching mode, and how this evolves will be relevant for broad USD dynamics over the tactical horizon, analysts at TD Securities argued and said that ''this is not a great setup for the CAD.''

 

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