The Canadian dollar extended Friday’s post-U.S. non-farm payrolls gains in active, but low volume FX trading on Monday and overnight. Domestic traders are returning to their desks to fin the USD/CAD trading at $1.2972, just above its overnight low of $1.2962 and well below Friday’s 5:00 pm EDT closing level of $1.3002.
FX markets are warily watching for escalating tensions from Brexit developments in the U.K., the China/U.S. trade spat, and elevated risks due to fresh U.S. sanctions on Iran. They are also keeping a close eye on equity markets.
Yesterday, Wall Street climbed, supported by better than expected earnings from Berkshire Hathaway (NYSE: BRK.A) and a rally in Facebook (NASDAQ: FB) stock. The positive tone carried over into Asia and Europe. Asia equity indices climbed steadily, led by gains in Chinese markets. European indices followed suit and U.S. equity futures point to a positive opening on Wall Street this morning.
The equity market rallies gave a slightly positive tone to FX risk sentiment which translated into Canadian dollar gains.
Oil prices rose steadily. The latest Iran sanctions and the promised oil sanctions that take effect in November underpinned WTI oil prices which climbed to just under $70.00/barrel which is another factor supporting Canadian dollar prices.
Traders ignored the Canada/Saudi Arabia diplomatic spat that started by a dumb tweet by Canada’s Foreign Affairs Minister Chrystia Freeland. She wrote "Very alarmed to learn that Samar Badawi, Raif Badawi’s sister, has been imprisoned in Saudi Arabia. Canada stands together with the Badawi family in this difficult time, and we continue to strongly call for the release of both Raif and Samar Badawi." A senior government Minister responsible for diplomatic relations should know better than to scold another sovereign nation using Twitter. Who does she think she is? Donald Trump? Saudi Arabia reacted by expelling Canada’s ambassador from the Kingdom and recalling 7,000 Saudi students. Ms Freeland can’t understand the Saudi reaction.
Freeland’s performance with the Saudi file may be indicative of why Canada has not been included in the latest North American Free Trade Agreement negotiations on autos. There are reports that the United States Trade Representative Robert Lighthizer dislikes her, which doesn’t bode well for Canada/U.S. trade.
Despite all that, the Canadian dollar has been resilient. Bank of Canada Governor Stephen Poloz's optimistic economic outlook and indications of higher domestic interest rates have underpinned the currency. This week’s Canadian data should support the view for higher rates. The Canadian employment report is due Friday and forecasts are for a gain of 24,000 jobs.
The Canadian Ivey Purchasing Managers Index is due later today which may give the Canadian dollar a bit of a lift the result is higher than the 64.2 forecast.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
