USD/CAD edges higher amid slowdown concerns

At 1.2824, USD/CAD is higher on Tuesday so far as the commodity sector is shaken by concerns about weak earnings and slowing economic growth punctured the recent mini-rally. Shares have been performing negatively while traders, market participants and investors are still 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 zero-COVID policy will be in force all year long, acting as a hinderance of returning to normalcy and limiting the effectiveness of new fiscal and monetary stimulus measures, as mentioned by S&P Global.

Oil prices are 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; this is not a great setup for the Canadian dollar.