The Canadian dollar is consolidating Friday’s gains inside a USD/CAD range of $1.2966-$1.2988 band. The Canadian dollar rally was fueled by the steep rise in crude oil prices which occurred after the U.S. drone strike in Iraq. The attack killed a top Iran military official, General Qassem Soleimani, whom the Americans accuse of being the head of a U.S.-designated terrorist organization.
President Trump continued to inflame tensions on Sunday tweeting: "The United States just spent Two Trillion Dollars on Military Equipment. We are the biggest and by far the BEST in the World! If Iran attacks an American Base, or any American, we will be sending some of that brand new beautiful equipment their way...and without hesitation!" Later he threatened that "These Media Posts will serve as notification to the United States Congress that should Iran strike any US person or target, the United States will quickly & fully strike back, & perhaps in a disproportionate manner. Such legal notice is not required, but is given nevertheless!"
West Texas intermediate oil prices jumped and closed at $63.03, Friday. The gapped higher at the Asia open, touching $64.70 before dropping to $63.81 in Toronto, today. Prices are higher because traders fear Iran will disrupt crude shipments through the Strait of Hormuz. However, Iran’s failure to escalate the crisis (so far) led to the drop from the overnight peak.
The increased geopolitical risks put a shine on gold prices. XAU/USD rose nearly $22.00/ounce overnight, rising from $1,566.67 to $1,588.05, only to open in the middle of that range.
FX ranges were relatively subdued, indicating that market liquidity is returning to normal levels. GBP/USD gained the most in overnight price action, jumping to 1.3172 from 1.3065. The rally was sparked by better than expected U.K. Markit Services Purchasing Managers' Index data for December, which came in at 50 compared to the 49.2 forecast. GBP/USD also benefited from broad U.S. dollar weakness.
EUR/USD got a boost after German and eurozone economic data beat estimates. German Retail Sales rose 2.8% in November while December PPI came in at 54.9. Eurozone Services PMI, Investor Sentiment and Producer Price Index surpassed expectations and together, helped lift EUR/USD from $1.1158 to $1.1204 in Toronto trading.
USD/JPY and USD/CHF, the traditional safe-haven currencies, were in demand. Both currency pairs are trading in Toronto at or near their overnight lows due to geopolitical concerns.
Canadian dollar traders ignored this morning's release of November Industrial Product and Raw Materials price data. Traders are looking ahead to Thursday’s speech by Bank of Canada Governor Stephen Poloz and Friday’s U.S. and Canadian employment reports.
