Canadians were on holiday yesterday, and the Canadian dollar rallied in their absence. The news that the U.S. agreed to end the tariffs on Canadian steel and aluminum helped, but the catalyst was the surge in oil prices between Friday’s close and Monday’s Asia open.
West Texas Intermediate gapped higher, rising from $62.72 U.S. /barrel at the end of the trading day on Friday to $63.27/b at the Asia open. The gap was filled during Monday’s New York session, and then prices resumed their upward move. News that Saudi Arabia and the Organization of the Petroleum Exporting Countries may defy Trump and keep production curbs until the end of 2019 underpinned prices. WTI is also supported by rising tensions between Iran and the U.S.
President Trump threatened to "end Iran" in a tweet on the weekend. The risk of supply disruptions due to middle east hostilities is overshadowing global growth concerns from a prolonged U.S./China trade dispute.
The Organization for Economic Cooperation and Development (OECD) issued its May outlook and warned that trade uncertainty was dragging down global growth. It noted that trade growth plunged, and investment slowed, citing trade tensions, high debt and China slowdown as significant risks.
The U.S. is trading with a mixed note in the early Toronto session. The Canadian and Australian dollars, as well as the Swiss franc, are the only currencies to have gained since Friday’s close.
FX markets are cautious despite the U.S. Commerce department giving American companies a three-month reprieve in dealing with Huawei Technologies. The China Foreign Ministry blamed the U.S. for the lack of a trade deal saying "The United States was seeking unreasonable interests by imposing maximum pressure, which was the fundamental reason behind the failure to reach a deal between the two countries after 11 rounds of high-level economic and trade consultations."
The British pound led the euro, yen and New Zealand dollar lower on increasing fears that the U.K. will leave the European Union without a deal. Also, Prime Minister Theresa May is expected to resign. Boris Johnson is the frontrunner to replace her, and he is seen as a GBP/USD negative. GBP/USD dropped from $1.2757 to $1.2687 but has recovered to $1.2712 in Toronto trading.
EUR/USD is on the defensive and hovering just above key support in the 1.1140-45 zone. Dovish comments from European Central Bank officials weighed on the currency pair as did the ongoing U.S./China trade dispute and the OECD May outlook.
The Canadian dollar is getting a little benefit from last weeks domestic data, which included firmer Consumer Price Index data and a bounce in existing home sales.
There is any domestic data today. The only U.S. data of note is existing home sales. However, FX markets will take their direction from trade headlines.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
