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Greenback Defensive On Higher Oil Prices After Saudi Attack

Currency-Market-Update-Tuesday-1
Albert Edwards
by Albert Edwards on September 17, 2019

CURRENCY MARKET UPDATE

U.S. Dollar Highlights:

USD firm due to safe-haven status after an attack on Saudi Arabian oil facilities over the weekend. The drone attack was on the world’s largest crude-processing facilities and will disrupt supply for at least two weeks. This has created market volatility and uncertainty as concerns about supply disruption increased. The U.S. has assessed the attack came from Iran and the government will use oil reserves to mitigate any supply shortages. Markets are also concerned President Trump may respond with the military. Meanwhile, trade talks with China are progressing; however, Industrial production in China for August was the weakest in seventeen years. All eyes on the FOMC meeting starting tomorrow with a 25bps rate cut already fully priced in.

Canadian Dollar Highlights:

CAD stronger after oil prices surged, but vulnerable due to risk-off. Crude oil jumped by 10% to over $60.00 per barrel on supply fears, however, CAD direction will be determined by developments in the Middle east and Washington this week. All eyes on the Consumer Prices report and Retails Sales later this week.

Euro Highlights:

EUR weaker as markets digest the European Central Bank’s dovish message last week. The central bank cut rates (as expected) and restarted the quantitative easing program to put EUR under pressure. Markets were disappointed by the minor 10bps cut, however, once new President Christine Lagarde replaces Mario Draghi in November more stimulus is expected. European Union Commissioner Jean-Claude Juncker will meet with U.K. Prime Minister Boris Johnson.

British Pound Highlights:

GBP weaker ahead of Johnson’s meeting with the European Union to try and finalize a deal or Brexit extension. Johnson faces legal challenges if he attempts to leave with no-deal and is reluctant to request an extension. The deadline to leave the European Union is approximately seven weeks with parliament suspended until October 14. All eyes on the Bank of England’s interest rate decision later this week (no changes expected).