USD/CAD Loonie Lower as Geopolitics Trump Oil Gains

The Canadian dollar gave back the gains from the previous session as risk aversion made investors seek safety. There is little economic data to drive markets this week leaving all the spotlight to diplomatic and less than diplomatic exchanges between foreign powers. Comments from Donald Trump urging China to help or get out of the way on North Korea has ruffled some feathers. As the G7 meeting concludes with no new sanctions towards Russia, Putin has said that US-Russia relations are at Cold War lows. The appetite for gold has risen as the yellow metal is being used as a safe haven during turbulent times.

The Bank of Canada (BoC) will publish its monetary policy report and rate statement tomorrow at 10:00 am EDT. Governor Poloz will find it hard to maintain a dovish tone and talk the loonie down after strong gains in employment and inflation could be signs that the central bank needs to get out of the sidelines sooner rather than later. In January cutting rates was still an option for Poloz, but now the March rate hike by the U.S. Federal Reserve and improving economic fundamentals in Canada could bring about a rate hike. Rising household debt and the housing bubble born out of low rates will be a concern for the central bank. The market consensus calls for no changes to the rate this time, but the pressure will rise if the economy is able to maintain its momentum and imports drive inflation higher urging the BoC to act sooner rather than later.

USD/CAD has lost 0.101 percent in the Tuesday trading session. The pair is trading at 1.3343 as the USD is losing traction after comments from US President Donald Trump have put China on the spot regarding North Korea. The G7 meeting in Germany has yielded no new sanctions for Russia after the Syrian attacks were condemned internationally.

The Canadian dollar remains stable as oil prices are still up 0.325 percent today. West Texas is trading at $52.61 ahead of tomorrow’s US crude inventories. Oil prices have risen of late on the back of supply disruptions and the anticipation of an extension to the original Organization of the Petroleum Exporting Countries (OPEC) production cut agreement.

Gold has risen 1.257 percent in the last 24 hours. The price of the yellow metal is trading at $1,266 where it trades near daily highs after geopolitical anxiety has sent investors looking for safety. Gold has hit a five month high as this week’s geopolitical factors are taken into consideration on a already full risk agenda with the French elections the next major event on April 23. The Trump administration has boosted the metal as a safe haven after it appeared to have been reprioritized by investors in the last couple of years.

Comments from Fed Chair Janet Yellen yesterday at the University of Michigan were positive for the commodity as once again the “patient” Fed was on display.

Market events to watch this week:

Wednesday, April 12
4:30am GBP Average Earnings Index 3m/y
10:00am CAD BOC Monetary Policy Report
10:30am USD Crude Oil Inventories
11:15am CAD BOC Press Conference
9:30pm AUD Employment Change
Tentative CNY Trade Balance
Thursday, April 13
8:30am CAD Manufacturing Sales m/m
8:30am USD PPI m/m
8:30am USD Unemployment Claims
10:00am USD Prelim UoM Consumer Sentiment
Friday, April 14
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza