The Canadian dollar held on to its recent gains despite a spate of safe-haven FX demand due to U.S. and Iran tensions. A steep rise in West Texas Intermediate (WTI) oil prices played a significant role in limiting Canadian dollar downside during the early Asia turmoil.
The American government is livid that Iran had the audacity to shoot down a U.S. military drone that was skirting Iranian territory in the Strait of Hormoz. The U.S. accused Iran of complicity in last week’s oil tanker attacks. Iran denied being involved, but the U.S. decided to flex its military muscle. Iran’s outrage about a U.S. military aircraft near their airspace is similar to how the U.S. would respond if Iran flew drones off the Florida Keys.
The New York Times reported that President Trump authorized a military strike against Iranian radar installations and other military targets.
Rumours of such move drove WTI to $57.76 U.S./barrel in early Asia trading, a 6.7% gain in less than 24 hours. Trump changed his mind and called off the action even as the planes were in the air. Oil prices pared their gains but are still trading at $57.63 in Toronto.
The U.S. dollar started today’s session with modest gains against the G-10 major currency pairs except for the euro and the Canadian dollar.
GBP/USD was the worst performing currency, falling from $1.2733 to $1.2644. The U.K. Tory leadership race is down to two contenders, Boris Johnson and Jeremy Hunt. Johnson is widely expected to win and become the next prime minister. He is also in favour of leaving the European Union, and GBP/USD is suffering consequently.
EURUSD is trading sideways. This morning's round of mixed Markit Manufacturing Purchasing Managers Index data for Germany and the euro-zone didn’t do anything to undermine European Central Bank (ECB) President Mario Draghi’s view that the euro-zone economy is slowing and more stimulus may be needed.
USD/JPY dropped on the back of falling U.S. Treasury yields and demand for safe-haven currencies. Prices have recovered from their overnight lows, coinciding with a rebound in Treasury yields. Prices got added support from news that U.S./China trade talks could resume as early as Tuesday.
Canadian Retail Sales data for April are due this morning. The consensus forecast is for a rise of 0.2%, month over month, well below last month's 1.1% gain. A result close to estimates will be but a replay of the March result’s will trigger a sharp rise in the Canadian dollar.
Today’s U.S. data is second tier. Next week is loaded with risk from Trade talks, data and the G-20 which suggests traders may stay on the sidelines today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
