USD/CAD - Canadian Dollar Sinks as U.S. dollar soars but Canadian jobs data helps loonie

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The Canadian dollar rallied a bit based on 54.1k jobs added in July vs. expectations of 11k. A large number of part-time jobs were added while full-time jobs fell which is the devil in the details. The employment rate fell to 5.8% in July from 6.0% in June. This is a big number for the jobs data and its largely positive. However, US dollar strength recently is still driving the loonie lower due to other headwinds.

The Canadian dollar is not the only currency to suffer from sanctions or diplomatic spats. The Turkish lira suffered a similar fate in the past few days. USD/TRY soared to 6.2720 from 5.2700 on Wednesday fueled by a diplomatic row with the U.S. The American government is unhappy with Turkey for arresting a U.S. pastor in connection with the failed coup a couple of years ago. The U.S. levied sanctions against some Turkish government officials, and Turkey is threatening to arrest U.S. Military officials based in the country.

The plunge in the Turkish lira raised concerns in the European Union. The Financial Times reported that the Single Supervisory Mechanism, the department monitoring the E.U.’s major banks, is concerned about bank exposure to Turkey.

EUR/USD, which was already in a downtrend because of differing European Central Bank and U.S. Fed interest policies, accelerated lower and crashed through key support in the 1.1505-10 zone. To some analysts, the move below that level signals the onset of another leg lower in EUR/USD.

The U.S. is the common denominator behind the rise of trade spats, sanctions and other geopolitical issues. The Americans have imposed new sanctions on Russia for a reported chemical attack on a U.K. citizen in London. Arguably, the issues around the attack are between the U.K. and Russia, and the U.S. is interfering. China claims that the U.S. levied tariffs on them because the Chinese are unhappy with China’s rising prominence in global affairs, which suggests the U.S./China trade war may be prolonged.

The U.S. put fresh sanctions on Iran, claiming they violated the Nuclear treaty despite the E.U. claims to the contrary. The U.S. has threatened to sanction any company/country doing business with Iran, and the E.U. is telling those same countries and companies to defy Uncle Sam. All the above stress has led to broad US dollar demand from safe-haven flows.

The Canadian dollar is caught up in the maelstrom and caused one of its own. Canada’s Foreign Affairs Minister Chrystia Freeland created a sandstorm with Saudi Arabia after tweeting about an imprisoned Saudi dissident. Saudi Arabia’s reaction was a tad over the top. In addition to expelling Canada’s Ambassador to the Kingdom, they reportedly are dumping "Canadian assets “whatever the cost."

The Canadian dollar has also been bounced about by North American Free Trade Agreement headlines. Canadian dollar sellers emerged when it was reported that Mexico and the U.S. were close to a deal on autos and Canada wasn’t part of the discussions. Those sellers became buyers on news that a NAFTA deal could be struck before the end of the month.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians