The US dollar pushed higher versus the Canadian dollar on Tuesday. US dollar Canadian dollar exchange rate rallied 0.3% paring losses from Monday’s session and closing at the key 1.30 level. The Canadian dollar is strengthening in early trade on Wednesday.
The US dollar advanced in the previous session as Iran – US tensions continued to unsettle risk appetite in the market. With Iran vowing to retaliate, flows into safe haven assets such as gold and the US dollars remained strong.
Overnight Iran retaliated attacking the second largest US base in Iraq. Here have been no causalities so far. It remains to be seen whether Trump will counter retaliate.
The dollar also pushed higher amid improved fundamentals on Tuesday. The US ISM non-manufacturing pmi came in at 55, this was above analysts’ expectations of 54.5 and up solidly from November’s 53.9. The service sector reading is in stark contrast to the ISM manufacturing index which last month dropped to its lowest level since June 2009.
Today investors will continue watching developments in the Middle East closely. Attention will also move towards the ADP private payrolls figure ahead of the all-important non-farm payroll on Friday. Analysts are expecting the ADP report to show that 160,000 new jobs were created in the private sector. This would be well ahead of last month’s 67,000. Given the strong correlation between the non-farm payrolls and the ADP report, a strong reading could lift the dollar further.
Oil Spikes To 9 Month High
Weak Canadian data also dragged on the Loonie on Tuesday. The Ivey Purchasing Managers’ Index dropped sharply to 43.6 in December, down from 58.4 in November. The soft reading raised questions over the health of the Canadian economy. So far, the Bank of Canada has avoided joining global central banks that are easing monetary policy. However, should the economy continue to show signs of weakness the BoC may jump on the easing bandwagon.
The retaliation by Iran sent oil spiking 4% higher overnight. West Texas Intermediate jumped to a 9-month high of $65.48 following the attack, before easing back towards $63.30. The fact that there have been no causalities in the attack has investors downplaying the chances of a retaliation from Trump. The commodity sensitive Canadian dollar has advanced on stronger oil prices.
Canadian dollar investors will continue monitoring tension between the US and Iran and the impact on the price of oil. Crude oil inventory data will also be under the spotlight.
