The Canadian dollar fell on Friday with the release of retail sales showing a lower than expected gain in both core and headline data. The loonie will end up the trading week by gaining 1.45 percent against the US dollar. The Fed signalled at the end of its June Federal Open Market Committee (FOMC) meeting that the central bank is ready to cut interest rates.
Oil prices surged as the dollar retreated as geopolitical risks and a refinery fire in the US will impact global supplies. Gold was also bid as investors sought the metal as an alternative asset class offering refuge from rising uncertainty.
The Bank of Canada (BoC) is part of the dovish choir of major central banks, but with inflation pushing higher it has not signalled it is ready to start easing its monetary policy in the short term. The interest rate divergence will shrink with the US benchmark as the Fed could try to be pro active, although a fruitful meeting between Presidents Trump and Xi could remove some of the pessimism inside the American central bank.
G20 Trump Xi Meeting the Top Market Event
The US dollar fell across the board against major pairs in the last five trading days. The Fed delivered a dovish statement and a rate cut seems imminent based on Chair Powell’s press conference. The greenback is lower as investors are looking for yield elsewhere. A big factor of the lack of appeal in the US dollar is the optimism on trade. President Trump and Xi will meet in Japan on a sidebar during the G20 meeting and the thawing of trade talks could lead to the much anticipated agreement between the two nations.
Commodities have risen on the softness of the dollar, but the Iranian attack on a US drone increased tensions as Iran could be under further economic sanctions. US stocks have hit record highs as the Fed is ready to cut the benchmark interest rate and the optimism on trade, but there are concerns around the situation in the Middle East and all eyes will be on the G20 meeting for updates on the US-China relationship.
Dollar on Back Foot on Trade Optimism and Fed Rate Cut Plans
The EUR/USD rose 1.49 percent during the week. The single currency was not the biggest winner against the greenback and it was mainly because the European Central Bank (ECB) was also dovish in its assessment of the European economy, but reassured the market that the central bank is ready to act by cutting rates if necessary. Unlike the Fed the ECB has not ended its easing cycle, so it put its first possible rate hike further way until summer of 2020.
German Ifo business confidence will be published on Monday, the large sample size survey has declined in the past two months with businesses more dovish on the German economy in the next six months. The German leading indicator will be crucial for the EUR as the country is the engine of the Union and low confidence could be contagious.
The US could be making trade peace with China at the G20, but the European car industry is next on the agenda as tariffs were delayed, but not forgotten.
Oil Rises on Supply Disruptions and Soft Dollar
West Texas Intermediate rose 9.19 percent during the week and Brent gained 5.39 percent after the US drone incident. Iran shot the drone and versions differ if the spy drone had entered Iranian airspace or if was flying in international airspace. US President Trump tweeted aggressive words towards Iran, but armed conflict eased as sanctions appear to be the preferred tactic.
US production has been on the rise, but a fire at a major refinery could create a supply shortage of gasoline during peak driving season.
The Trump-Xi meeting at the G20 meeting benefited the black stuff if an amicable tone is reached that will be putting less downward pressure on global growth concerns.
Gold Higher on Safe Haven Appeal
Gold surged 4.36 percent during the last five trading days and remains close to the $1,400 price levels. The yellow metal had struggled to break above $1,350 but the Fed removed that obstacle when it dropped heavy hints that a rate cut is coming. The US dollar fell and with macro risks keeping investors tense, the appeal for gold as a safe haven was higher.
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