The rates continue within the downward trend formed in January 2018. Trade conflicts for a long time had a negative impact on the value of commodity currencies and this exerted pressure on the CAD. In the last month it seemed that negotiations to resolve the conflict between the US and China were at their final stage, which increased investors' appetite for risky assets. Instead of that the trade conflict erupted with renewed vigor this week, so the safe assets were again supported. Donald Trump has raised duties on goods from China, which means that the negotiations have not been as successful as expected.
The development of the conflict between China and the United States certainly had a negative impact on the price of oil and commodity currencies. The Canadian dollar was not an exception, which fell this week despite good data on the Canadian economy. In particular, the PMI Ivey business activity index rose to 55.9 pips, demonstrating growth for the third month in a row and significantly exceeding investors' expectations. More than expected, the volume of construction of new houses increased in April. The trade deficit narrowed for the fourth consecutive month in March, although at a slower pace than expected. Nevertheless, the growth of exports at a higher rate than the growth of imports maintains a positive trend in reducing the trade deficit. Unfortunately, unfavorable external factors turned out to be more important for investors because the world economy, demand, and prices for raw materials depend on them, which is very important for the CAD.
The situation for the JPY turned out to be the opposite: despite the signs of slowing inflation and economic slowdown in the country, the JPY receives support as the most optimal safe asset for investors. We suppose that in the near future the situation will not change. Negotiations between the US and China are delayed, so the demand for safe assets will remain high. In this situation, the most optimal would be the deals on the trend. The efficiency of short deals is also confirmed by most technical analysis tools. At the same time, there is a possibility of a price correction because the rates are in the oversold zone according to the Stochastic oscillator signal.
