The Canadian dollar strengthened once again versus its US counterpart on Monday. From an open of 1.2989 the US dollar Canadian dollar exchange rate skidded lower, reaching a nadir of 1.2958. The pair closed just up from the low at 1.2962. The Canadian dollar is extending those gains in early trade on Tuesday.

The risk off mood lessened across the previous session and demand for the safe haven dollar declined, as the panic surrounding rising tensions in the Middle East eased and investors reassessed the likelihood of a US – Iran war.

The dollar traded with a negative bias even after better than expected US service sector pmi data. The data showed that the US service sector activity experienced moderate growth of 52.8 in December, up from 51.6 in November. With a solid rise in new orders, the data suggests a further recovery in output growth could be on the cards after a slowdown in the summer months

Today the US service sector stays under the spotlight with ISM non-manufacturing data. This is the more closely watched US service sector data point. Analysts are expecting growth of 54.5 in December, up from 53.9 in November. A strong reading could help lift the dollar by calming fears of the manufacturing slump spilling over into the dominant service sector.

Industrial Production & Oil Drive Loonie

The rally in oil at the start of the week helped the commodity sensitive Canadian dollar stay resilient versus the US dollar. Yet even as the US – Iran inspired rally in oil started to ease, the Loonie has managed to hold onto its gains, thanks to upbeat data.

Better than expected Raw Materials Price Index and Canadian industrial production have helped keep the Loonie buoyant.

As investors wait for the next move from either the US or Iran market participants believe that the odds are receding of war breaking out. Oil prices, which are key to the Canadian economy, closed Monday’s session 1.3% lower paring some of the gains from late last week. The Canadian dollar could come under pressure as oil is slipping again in early trade on Tuesday.

Canadian dollar investors will now look towards data for fresh impetus. Today sees the release of International trade merchandise trade and Ivey purchasing managers index. More strong domestic data could see the Canadian dollar strengthen further versus the US dollar.


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