- Iran and US escalation lifts oil prices
- US and Canada economic calendars are empty
- US dollar opens mixed after subdued overnight session.
USDCAD open: 1.3803, range Friday close-Tuesday.1.3776-1.3844, close Fri. 1.3838, WTI 93.58, Gold 4,402.09
The Canadian dollar climbed after another round of US-Iran attacks sent oil prices higher, although trading remained subdued in holiday-thinned markets.
Canada’s response to Trump’s 50% tariffs on Canadian goods kicked in at 12:01 am, with Prime Minister Mark Carney’s government imposing dollar-for-dollar tariffs on US imports. It will hurt Canadians and Americans as well.
Americans are already paying more at the gas pumps, and the economic damage from the Iran conflict is adding to the bill. The Watson School of International and Public Affairs puts the cost at $100.7 billion since Trumps bungled attack on Iran.
Meanwhile, Statistics Canada reported that the Canadian economy lost 41,700 jobs, dramatically missing expectations for a 15,000 increase. The unemployment rate was unchanged at 6.4%. Economists largely viewed the decline as a reversal of some of July’s unusually strong 75,100 job gain. Combined with the continuing uncertainty surrounding trade, the weak employment report should strengthen the case for the BoC to leave rates unchanged at its October 28 meeting.
WTI oil prices slipped from Friday’s close of $90.86 to $90.73 overnight after Iran’s Houthi proxy attacked a Saudi Arabian energy facility and a Saudi airbase, injuring more than 70 people. The attacks came in retaliation for US strikes on Iranian oil tankers on Saturday.
It’s the start of another school year and for FX traders, the desks are back at full strength. Friday’s blowout US employment report remains the main focus, with payrolls increasing by 162,000 against expectations for a gain of just 55,000. Adding to the strength, revisions to June and July lifted the combined total by another 55,000. The employment numbers reduce the pressure on the Fed to cut rates quickly and allow policymakers to keep their focus firmly on the inflation risks associated with Trump’s tariffs and the war on Iran.
Trump wasted little time taking credit for the strong employment performance, declaring it the “Trump Boom.” He then turned his attention to the Fed, warning, “LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT.”
The inflation picture is becoming even more complicated as commodity prices move higher. Copper has been one of the major beneficiaries of Trump’s tariff threats, climbing to fresh record highs and extending its gain for the year to 17%.
Asian equity markets ended lower as geopolitical tensions intensified. Japan’s Topix dropped 1.83%, Australia’s ASX declined 1.09% and the Hang Seng fell 0.38%.
European markets are mostly directionless as of 7:40 am. Germany’s DAX is down 0.17%, while France’s CAC 40 and the UK FTSE 100 are little changed to slightly lower. S&P 500 futures are down 0.28%, the 10-year Treasury yield is 4.803%,and the DXY is 98.96.
EURUSD traded with a slight downside bias despite a stronger set of Eurozone data. Q2 GDP was revised higher to 1.2% y/y from 1.0%, while the Sentix confidence index improved sharply to 5.1 from 0.9. The Houthi attack on Saudi Arabia and the subsequent rise in crude prices weighed on the single currency.
GBPUSD remained locked in a tight range and was trading close to its session low. Hawkish remarks from Bank of England Chief Economist Huw Pill have lifted expectations for two rate increases before March 2027, providing some underlying support for sterling. The upside was limited by softer BRC Retail Sales, which increased just 0.5% in August after rising 1.0% in July.
USDJPY initially extended Monday’s decline after falling to a seven-month low, but the move was completely reversed overnight and into the New York session. Markets are anticipating a 25 bp BoJ rate increase on September 18, with the possibility of another hike before the end of the year. Japan’s Q2 GDP expanded 1.4% y/y, comfortably ahead of the 1.1% increase economists had expected.
AUDUSD ignored weaker consumer and business confidence readings and held onto the gains accumulated last week. Stronger commodity prices and growing expectations of an RBA rate hike this month are supporting the currency. Those expectations received another boost after RBA Assistant Governor Sarah Hunter said rates could need to move higher if inflation remains elevated.
