The dollar has staged a three-day rally from its lowest levels since May, driven by US sanctions on Iran and a breakdown in US-Canada trade talks. The safe-haven bid has lifted USD/CAD to its best day in two months, pulled gold off its highs, and pushed USD/JPY back toward levels that could trigger intervention.
Iran sanctions and Canada tensions fuel the dollar's safe-haven bid
The US dollar climbed for a third straight day off its lowest levels since May as risk appetite fell across markets. Washington's launch of sanctions against more than 60 organisations tied to Iran's oil trade, dubbed Operation "Economic Outcast," rattled stock indices and pushed investors toward the greenback. At the same time, the breakdown in US-Canada trade negotiations added to the pressure, with Washington imposing large-scale tariffs on Ottawa and Canada promising to retaliate dollar for dollar.
Brent crude fell after a six-day rally as the sanctions news played out on a "buy the rumour, sell the fact" basis. However, the longer-term outlook for the oil market still leans bullish, since tighter restrictions on Iran point to reduced supply. Much depends on how China responds, as Beijing buys around 90% of its oil from Iran and its cooperation is seen as essential to enforcing the cutoff.
USD/CAD posts its best day in two months
The tariff dispute between Washington and Ottawa had an immediate effect on the currency market. USD/CAD recorded its best daily performance in two months as Canada's retaliation pledge raised the risk of further escalation between the two economies.
Gold retreats as the yen edges toward intervention territory
Gold pulled back from its recent highs on profit-taking after a prolonged rally, compounded by the stronger dollar. That profit-taking has not erased the metal's underlying "debasement trade," leaving room for another push higher.
USD/JPY, meanwhile, resumed its uptrend and is approaching the 160 mark, a level above which the risk of verbal and eventually currency intervention would increase. Futures markets are pricing an 82% probability of a Bank of Japan rate hike in September, and recent comments from officials are unlikely to change that view.
Source: ActionForex
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