Today's expected range for the Canadian Dollar against the major currencies:
US Dollar 1.3760-1.4010
Euro 1.5980 -1.6230
Sterling 1.8680 -1.8930
WTI Oil (opening level) $86.10
The CAD/USD is opening at 1.3887 ( 0.7201 )
A further escalation of tensions between the US and Iran triggers a fresh leg up in crude oil prices, underpinning the commodity-linked CAD. The USD, on the other hand, attracts some sellers and erodes a part of Friday's strong move up to a two-week high. These turn out to be key factors acting as a headwind for the USD/CAD pair. However, reviving bets for a rate hike by the Fed, along with geopolitical uncertainties, should help limit losses for the safe-haven USD and the currency pair.
In the latest developments surrounding the Middle East crisis, US forces struck two rocket launchers on Iran’s Larak Island in the Strait of Hormuz on Sunday. This, in turn, prompted Iran to retaliate by launching ballistic missiles on two US bases in Jordan.
Meanwhile, Fed Chair Kevin Warsh, speaking at the central bank's annual symposium in Jackson Hole, hinted that interest rates could need to move higher if more progress isn’t made on easing price pressures. This comes on top of inflation risks stemming from rising energy prices and lifts market bets that the US central bank will raise borrowing costs in September, which, in turn, favors USD bulls.
Apart from this, the deepening US-Canada trade spat could limit any meaningful appreciation for the CAD, warranting some caution before placing aggressive bearish bets on the USD/CAD pair. Traders might also opt to wait on the sidelines ahead of the Bank of Canada rate decision on Wednesday and the crucial monthly jobs report from the US and Canada on Friday.
Headlines
· Fed Chair Kevin Warsh delivered a hawkish speech at the Fed’s Jackson Hole, Wyoming symposium on Friday as he declared that inflation is not slowing and that interest rates are the “predominant tool” for the Fed to achieve its mandate, though he continued to criticize the notion of the Fed’s former forward guidance policy or to provide any specific hints on policy tightening. “I stand here today committed to a discipline, not to a decision”.
· US Treasury Secretary Scott Bessent said he expects the Bank of Japan will “do the right thing” on policy and said he expected to meet with Bank of Japan governor Ueda on the sidelines of the upcoming G20 summit, which starts today in North Carolina. Japan’s Ministry of Finance said Friday that its intervention to support the JPY had deployed over JPY 15 trillion (USD 96 billion).
· A weekend military exchange reset the geopolitical backdrop. The US struck Iranian rocket launchers reportedly preparing to mine the Strait of Hormuz on Sunday, its first such attack in over a month, alongside increased sanctions pressure. Roughly 6 to 8 million barrels of crude still transit the strait each day. An Iranian official said renewed talks with Washington are not impossible.
Key Points
· Macro: A weekend strike near Hormuz collided with a hawkish Fed chair to reset the week
· Equities: US stocks slipped on hawkish Fed signals, Europe rebounded, Asia recovered from early losses as rate fears and higher oil hit technology.
· Digital Assets: Miners and treasury companies were sold hard while the coins themselves barely moved
· Commodities: Crude jumps on renewed supply risks as Warsh drives precious metals slump; speculators rush into agriculture at record pace
· Fixed Income: US Treasury yield curve bear flattens on hawkish Fed Chair Warsh speech Friday. Global yields follow US Treasury yields higher.
· Currencies: USD stronger on hawkish Warsh speech, USDJPY briefly traded above 160.00.