The Canadian dollar recovered all of Friday’s losses overnight, thanks to another surge in West Texas Intermediate (WTI) oil prices. Crude is in demand ahead of new U.S. sanctions against Iran, which President Trump tweeted said would be announced today.
On Saturday, he tweeted "Iran cannot have Nuclear Weapons! Under the terrible Obama plan, they would have been on their way to Nuclear in a short number of years, and existing verification is not acceptable. We are putting major additional Sanctions on Iran on Monday. I look forward to the day that....Sanctions come off Iran, and they become a productive and prosperous nation again - The sooner the better!”
The escalation of U.S. tensions since Tuesday underpinned crude prices. Iran shot down a U.S. spy drone, irritating America who came close to bombing Iran in retaliation. President Trump aborted the mission because he thought the response was a disproportionate response to Iran’s actions. WTI prices have climbed from $51.58/barrel on June 18 to $58.20 overnight, a gain of 12.8%.
The Canadian dollar is also benefiting from Fed Chair Jerome Powell’s shift to a dovish monetary policy stance. The market is pricing two U.S. rate cuts in 2019 with the first cut occurring next month. President Trump's ongoing haranguing of Powell and the Fed's policy stance may have contributed to Powell’s change of tone.
The Fed isn’t the only central bank considering new monetary policy stimulus. European Central Bank President Mario Draghi repeated his warnings that the ECB would fight stubbornly low inflation with "all the flexibility in our mandate." EUR/USD traders seem to be ignoring Draghi’s comments as EURUSD continued to climb steadily. Prices rallied from $1.1185 last Tuesday to $1.1394 in Toronto trading today.
FX markets are looking forward to the Osaka G-20 Summit and President Trump and Chinese President Xi Jinping’s meeting. The two world leaders are expected to facilitate the U.S./China trade talks which resume on Tuesday with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Mnuchin attending. Traders are hoping that both sides compromise and hammer out the framework of a deal.
The U.S. dollar began this week’s trading session on the defensive as Toronto markets opened. The major G-10 currencies added to gains made on Friday, led by the Australian dollar, which gained 0.38%. The Japanese yen was unchanged from Friday’s closing level. NZD/USD traders are awaiting the Reserve Bank of New Zealand monetary policy meeting on Wednesday, even though rates are expected to be left unchanged.
There are not any U.S. or Canadian economic reports on tap today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
