News & analysis

CAD

The loonie jumped on a softening dollar yesterday and continues its rally this morning following news that an Iranian oil tanker caught on fire near the Saudi Arabian port of Jeddah. The explosions were likely caused by two missiles and marks the third Iranian oil tanker to be incapacitated in 6 months in this part of the Red Sea. WTI prices are up 2% on the news, trading at $54 a barrel, helping the loonie rally. Supply constraints are key for an oil rally at the moment given weakening demand conditions. Yesterday, Opec cut their 2019 global oil demand growth forecast for the fourth time in five months due to trade tensions.  USDCAD is now down 0.5% since yesterday’s open, with labour market data released this afternoon at 13:30 BST. Trend wage growth has been strong in Canada and the labour market remains tight. Expectations sit at 3.8% hourly wage growth and at 5.7% for the unemployment rate.

USD

The dollar is generally lower this morning, amid broad optimism about two key global risk stories, US-China Trade and Brexit. Following yesterday’s first day of trade talks between the US and China, President Donald Trump said that talks were “going very well”. Officials are reportedly aiming to reach a truce this week to avoid further tariff escalations that have been threatened by the US. Anonymous sourced reported by various news outlets including the Financial Times said the narrow deal being discussed would be based on Chinese purchases of US agricultural goods, and some provisions on other aspects of the trade relationship such as currency rates, intellectual property, and international access to Chinese markets. Technology transfers and industrial subsidies are reportedly out of scope – suggesting the US has given up on some of the interests the Chinese are most interested in protecting, for now. Trump said that he would meet with Chinese Vice Premier Liu He at the White House today – a possible hint at a photo opportunity to seal the deal.

EUR

The euro is pushing on this morning as it looks to extend the gains from the last two days. Positive trade headlines are helping EURUSD climb higher as growth concerns remain front and centre. Yesterday’s ECB meeting minutes added little to what Mario Draghi said in the latest monetary policy press conference. The minutes highlighted the unanimous support for an easing package to be delivered, with some members opting for a 20 basis point cut as opposed to a 10 basis point cut that was embarked upon. Further, there were some dissenting members with regards to the restart of the QE program, but comments from ECB members Knot and Weidmann following the decision highlighted this anyway. The minutes highlighted the political opposition to further QE expansion as the issuer limit comes into scope with Germany at the back end of next year.

GBP

Sterling saw its biggest one day gain of the year so far yesterday, as talks between Boris Johnson and Irish Taoiseach Leo Vardakar went far better than expected. The two leaders released a joint statement where they said that they could see a path forward, with Vardakar adding in a press conference that a treaty could be reached in the coming weeks. No further details on what concessions were made are public, and there is an almost auspicious shortage of leaks and anonymous briefings in this morning’s UK papers – almost as if both sides were keen to protect a viable deal from early attacks by political opponents. Head Brexit envoys Steve Barclay and Michel Barnier are meeting this morning, with the key potential outcome an announcement that negotiations will move to an intensive stage ahead of next week’s EU meeting.

 

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