The Canadian demonstrated its resilience overnight. The U.S. dollar squeezed out gains against the major G-10 currencies, yet USD/CAD managed to remain below the psychologically important $1.3000 level. Markets are content to believe that U.S./Iran tensions have eased because Iran has yet to retaliate for the U.S. killing of Iran Revolutionary Guards General Soleimani. The news media is filled with speculation about how U.S./Iran relations will unfold but, as evidenced by FX price activity, FX markets do not seem to care.
The spike in West Texas Intermediate oil prices that followed news of the U.S. drone attack on the Iranian general is rapidly unwinding, which may limit Canadian dollar upside from current levels. WTI prices topped out at $63.90/barrel yesterday and are trading in Toronto at $62.71/b.
China’s Minister for Agriculture and Rural Affairs said China would not raise quotas for the import of grains. If true, it may hamper Beijing’s ability to purchase all of the $80.0 billion in U.S. agriculture products required by the Phase 1 trade deal.
Asia FX markets opened with a mild risk-off tone, which did not last the session. The major equity indices closed with solid gains and European equity bourses are higher as well. The Australian dollar was the worst-performing major G-10 currency against the US dollar, losing 0.88%. Weaker than expected Australian data and sales of AUD/JPY fueled the losses.
USD/JPY rallied from 108.28 to 108.49 with prices supported by a rise in U.S. Treasury yields and gains in the Nikkei 225. The apparent easing of U.S./Iran tensions sparked some unwinding of some "safe-haven" trades. USD/CHF climbed as well, rising to 0.9707 from its overnight low of 0.9680.
EUR/USD direction is undecided. The single currency bounced in a $1.1166-$1.1196 band. Better than expected eurozone November retail sales data supported prices as did the preliminary inflation data for December, which showed Consumer Price Index at 1.3% y/y, as expected.
GBP/USD is trading at $1.3118, near the bottom of its overnight $1.3104-$1.3210 range. The currency pair continues to unwind the gains following the U.K. election, but prices remain in an uptrend while trading above $1.3090.
The Canadian dollar is struggling to extend its recent rally. Weaker-than-expected Canadian Merchandise trade data, noting softer exports, didn’t do anything to incite fresh demand. The Canadian Ivey Purchasing Managers Index report is due later today and is forecast to drop to 53.8 from 60.0. Significant deviations from the forecast usually lead to some Canadian dollar trading volatility, even though many Bank economists ignore the results.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
