The Canadian dollar drifted lower overnight, sinking alongside West Texas Intermediate oil prices. WTI has plunged 9.5% since Tuesday as the threat of a full-scale war between the U.S. and Iran faded. Earlier in the week, markets were on tenterhooks waiting to see how Iran would respond to the targeted killing of one of its generals by the U.S.
An American drone strike killed Revolutionary Guard General Qasem Soleimani, a man the Americans described as a terrorist. Iranian officials were outraged and said they would retaliate. That retaliation was a noisy, showy, but ineffectual missile strike on American military bases in Iraq. No American personnel were hurt, and afterwards, President Trump expressed a desire for peace. WTI oil dropped from $65.50/barrel on January 7 to $59.22 yesterday.
The U.S. dollar opened in Toronto this morning, with gains against all the major G-10 currencies. The British pound was the biggest loser, and that was because of very dovish comments by Bank of England Governor Mark Carney, who said that the Monterrey Policy committee discussed the benefits for more near-term stimulus. He pointed out that they had room to double the £60-billion stimulus package of August 2016, which would equate to a 1.0% rate cut. GBP/USD dropped to $1.3015 from $1.3122. It recovered slightly in Toronto trading.
EUR/USD is struggling. Yesterday’s break below support at $1.1130 opened the door to further losses to $1.1060. Weak German economic data including a 2.6% y/y drop in Industrial Production and broad U.S. dollar strength drove prices to $1.1098 from $1.1119.
USD/JPY was feisty rising from 109.02 to 109.47 thanks to the rapid unwind of safe-have trades entered into on Monday. Demand accelerated alongside a rebound in Japanese stock market prices and a jump in U.S. 10-year Treasury yields to 1.821% from 1.71% on Wednesday.
AUD/USD and NZD/USD retreated under the weight of broad U.S. dollar demand. AUD/USD woes were exacerbated by economic concerns from the wildfires and the Reserve Bank of Australia’s dovish monetary policy. NZD/USD tracked AUD/USD lower.
The Canadian dollar remains under pressure in early Toronto trading. Markets are hoping that Bank of Canada Stephen Poloz provides a fresh outlook for the Canadian economy when he delivers his speech today. With luck, Poloz will explain how the benefits from the U.S. and China’s Phase 1 trade deal will offset slowing domestic economic growth concerns.
Today’s U.S. economic reports will likely have a limited impact on FX markets ahead of tomorrows Canadian and U.S. employment data.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
