The Canadian dollar started the week quietly, content to hug the sidelines along with most of the G-10 major currencies. There were plenty of geopolitical worries along with the seemingly never-ending Brexit story and concerns around the upcoming European Central Bank meeting on Thursday.
U.K./Iran tensions were at the forefront. Iranian Revolutionary Guards seized a U.K. oil tanker in the Strait of Hormuz in retaliation for the U.K.’s seizure of an Iranian vessel a few weeks ago. British MP’s are still discussing their options. West Texas Intermediate oil prices soared to $56.86/barrel from Friday’s closing price of $55.73/b. The upside move ran into resistance due to ongoing concerns that the U.S./China trade war will reduce global crude demand. Goldman Sachs analysts think so -- they lowered their forecast for global demand to 1.27 billion barrels per day from 1.45 b/pd.
The Canadian dollar was underpinned by the oil price surge, and USD/CAD fell to $1.3043 from $1.3067. The Canadian dollar is stuck in a USD/CAD 1.3000-1.3100 trading band. Friday’s weaker-than-expected May Retail Sales report led to USD/CAD testing 1.3090, but it failed to extend gains higher, and prices quickly retreated. The price swing was due to analysis suggesting the Retail Sales report wasn’t as negative as the headline numbers implied and because the April result was revised higher.
The U.S. and China may be moving closer to another round of face-to-face trade talks. China is discussing ways to increase its imports of U.S. soybeans. President Trump also bolstered sentiment. He said "Secretary Mnuchin did have a call with the Chinese counterpart. They had a very good talk." However, traders have learned to discount Trump’s bombast.
The British pound was the biggest loser as of today's Toronto open. GBP/USD dropped from $1.2503 to $1.2458 due to the near-certainty that Boris Johnson will become Prime Minister. Johnson is on record for being willing to leave the European Union without a deal, which is undermining the currency pair. There are also concerns that the new Prime Minister could call a snap election.
EUR/USD traded in a narrow band with a bearish bias. The European Central Bank monetary policy meeting is Thursday, and it brings the risk of new monetary stimulus. ECB President Mario Draghi has warned repeatedly that the lack of growth and low inflation will lead to rate cuts.
Many analysts believe that if such an action were to occur, it wouldn’t be until the September 12 meeting. However, another school of thought suggests that Mr Draghi could cut rates on Thursday, thus getting a bigger market “bang for his buck.”
Canada Wholesale Sales data is on tap today. There isn’t anything from the U.S..
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
