The Canadian dollar is grinding out gains, supported by lofty oil and gold prices. Gold (XAU/USD) has soared over 12% since May 30 as the world’s major central bank’s open the money taps. The Reserve Bank of New Zealand policy meeting is Wednesday. It cut interest rates at its last meeting and are widely expected to leave rates unchanged.
However, they have an easing bias as does the Reserve Bank of Australia, the Bank of Japan and the European Central Bank. The U.S. Fed left rates unchanged at last week’s Federal Open Market Committee meeting but adopted a dovish stance and are expected to cut interest rates at the July meeting.
The FOMC deleted "patient" in the description of their outlook and replaced it with "monitoring." Analysts decided that the change meant the Fed was getting ready to cut rates. Fed Chair Jerome Powell said that the statement had "significant changes" and traders are hoping the will expound on that theme in his speech today, slated for around noon hour.
President Trump followed through on his threat to impose new sanctions on Iran and Iran responded by saying the sanctions were "outrageous and idiotic." The Iran/U.S. tiff has underpinned oil prices. West Texas Intermediate (WTI) touched $58.08 U.S./b overnight before drifting down to $57.68/b in Toronto trading.
In Asia, USD/JPY plunged from $107.39 to $106.79, fueled by U.S. 10-year Treasury yields dipping below 2.0%. Prices recovered when those yields recouped their losses. However, further gains are limited by the Bank of Japan and Fed’s dovish monetary outlook.
EUR/USD ticked above the $1.1400 level but could not sustain the momentum. Prices retreated to $1.1380 in Toronto as traders digest recent central bank outlooks and economic reports. Increased Iran/U.S. tensions support the single currency as it is viewed as a "safe-haven."
Nevertheless, gains are limited by the prospect of renewed monetary policy stimulus from the European Central Bank.
Sterling benefited from the broad U.S. dollar weakness, but ongoing uncertainty around Brexit and the Conservative party leadership contest capped gains. Prices are well below their overnight peak of 1.2783.
The Canadian dollar continues to be supported by broad U.S. dollar weakness and the prospect of two or more U.S. interest rate cuts in this year, with the first cut occurring in July. The U.S./Iran tensions and the risk of supply disruptions through the Strait of Hormuz combined with the expected production cut extension by the Organization of the Petroleum Exporting Countries until the end of the year have elevated crude price and lifted the Canadian dollar in the process.
There aren’t any Canadian economic reports available today. U.S. Housing Starts and Consumer Sentiment are on tap.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
