USD/CAD retreats below 1.3700 as Canada resumes trade talks with the US

• The US Dollar extends losses on risk appetite and hopes of Fed rate cuts.
• Canadian Prime Minister Carney confirmed that trade talks will continue this week.
• Weak Canadian GDP data and lower Oil prices weighed on the Loonie last week.
  

The US Dollar is giving away most of the ground taken in the previous two trading days. The positive risk sentiment following the announcement that the trade talks between Canada and the US will continue has boosted confidence in the CAD, pushing the US Dollar back below the 1.3700 level to hit intraday lows at 1.3650 so far.

On Sunday, Canada’s Prime Minister Mark Carney confirmed that the trade negotiations with the US will resume this week, af ter the country withdrew the digital services tax that caused the end of the negotiations last week.

On Friday, US President Donald Trump announced the suspension of the trade discussions with Canada, complaining about the digital tax, which he called a “direct and blatant attack on our Country (sic).” The US Dollar rallied after the news, hitting session highs right above 1.3755.ç

Canada's economy contracted in April

On the macroeconomic front, an unexpected contraction of Canada’s economy in April increased bearish pressure on the Canadian Dollar. Canada’s monthly GDP shrank by 0.1% against expectations of a flat performance, with weak manufacturing activity, highlighting the negative impact of trade tensions.

The pair, however, seems to have resumed the broader bearish trend, as the risk-on mood and hopes of a trade deal keep supporting the CAD, in spite of the falling oil prices.

Beyond that, the progress of Trump’s sweeping tax bill and growing hopes of Fed cuts in the coming months are likely to keep the US Dollar on the defensive today, with all eyes on a slew of US employment data, which will provide further clues on the US central bank’s easing calendar.