USD/CAD rallies to 1.4100 mark amid resurgent USD demand/escalating US-China tensions

• USD/CAD staged a strong intraday bounce on Friday amid a strong pickup in the USD demand.
• Escalating US-China tensions weighed on the risk sentiment and benefitted the safe-haven USD.
• A modest pullback in oil prices undermined the loonie and remained supportive of the move up.

The USD/CAD pair witnessed a dramatic intraday turnaround on Friday and rallied over 80 pips from the early European session swing lows to the 1.4020 region. The pair was last seen trading near the top end of its daily trading range, with bulls now looking to extend the momentum further beyond the 1.4100 round-figure mark.

Growing fears about the second wave of the coronavirus infections overshadowed the recent optimism over re-opening of economies in some parts of the world. This coupled with fading hopes for a quick global economic recovery continued denting investors' confidence, which was evident from a fresh leg down in the equity markets.

The global risk sentiment took a further hit amid escalating US-China tensions, especially after reports suggested that the US commerce department has moved to bar Huawei from acquiring semiconductors, chipsets made using US technology. This comes after the US President Donald Trump on Thursday said that he will not be renegotiating the trade deal with China.

The downbeat market mood provided a modest lift to perceived safe-haven currencies and assisted the US dollar to recover its early losses. Adding to this, a modest intraday pullback in oil prices undermined demand for the commodity-linked currency – the loonie – and further contributed to the pair's goodish intraday bounce.

The pair has now erased the previous day's negative move and might now be looking to aim back to retest the overnight swing high, around the 1.4140 region. Any subsequent positive move is likely to confront a stiff resistance near the 1.4175 region, which if cleared decisively, should pave the way for a further appreciating move for the USD/CAD pair.

Market participants now look forward to the US economic docket, which highlights the release of monthly Retail Sales figures for April. Apart from the broader market risk sentiment, the data might influence the USD price dynamics and produce some meaningful trading opportunities on the last day of the week.

Technical levels to watch