The Canadian dollar appreciated on Wednesday despite the Arab nations breaking away from Qatar. The middle east nation is accused of supporting known terrorist groups. Qatar is also a US ally, and hosts the US military central command in the region which puts the US in a compromising position as Saudi Arabia is also an ally of the US. Secretary of State Rex Tillerson has said that America will intervene if needed to defuse the situation. Oil prices were in for a rollercoaster ride as Qatari exports are the world leader in liquified natural gas.
The loonie is almost flat as the ups and downs have almost cancelled each other out. Mixed data in the US and the ongoing investigation into Russia and the Trump administration will heat up with the testimony of former FBI Director James Comey this week.
Canadian real estate appears to be finally cooling down as prices in Toronto grew in May but only 14.9 percent year over year and new listings jumped 48.9 percent with 20 percent less sales. There are still many unaccounted factors such as resisting that could skew the numbers, but at this point it looks like Toronto prices are going to fall, but without any major fundamental change such a hike in Canadian interest rates it could prove temporary as Vancouver suffered a similar fall but is now showing signs of a rebound.
Mexico and the United States reached a deal to settle their sugar dispute on Monday. The agreement comes before Canada, Mexico and the US renegotiate NAFTA. The sugar deal ends a dispute before tariffs were put in place and any retaliation that could make the upcoming renegotiation talks even more challenging. In related NAFTA news, the US Agriculture Secretary is asking Canada to eliminate a new dairy-pricing class that according to Americans undercuts sales by the US. The Trump Administration has already started the process that will give it the power to hold talks with NAFTA members as early as August, with an uncertain outcome that could reshape the dynamic between North American nations.
The USD/CAD lost 0.075 percent on Monday. The currency pair is trading at 1.3474 after a volatile start of the week. Oil prices have moved in a 3 percent range since the news about the souring relationships with a host of Arab nations and Qatar. The drop in oil prices kept the loonie under pressure as it close in on the 1.35 price level, only to recover with the underwhelming release of the ISM non-manufacturing PMI data in the United States.
The lower than expected US jobs report on Friday was not enough to derail the expectation of a U.S. Federal Reserve June rate hike, but a series of mixed economic data in the US has put big question marks on when or if there will be a third US benchmark rate raise in 2017.
Oil is down 0.577 percent in the last 24 hours. The price of West Texas Intermediate is trading at $47.24 after the political dispute in the Middle East. Saudi Arabia, Egypt, Bahrain, the United Arab Emirates, Libya, and Yemen have severed their relations with Qatar. The group is saying that its a move motivated by national security and to fight terrorism and extremism. Qatar is one of the largest suppliers of natural gas which had far reaching impacts as one of the biggest movers when the news hit was the Australian dollar as Japan and other Asian nations will look to others to fulfill their energy needs. The Aussie climbed 0.58 percent versus the USD.
The price of oil has enjoyed a period of stability following the freefall as supply of crude created a glut while demand remains slow. The Organization of the Petroleum Exporting Countries (OPEC) reached a production cut agreement last year and has now extended that deal into 2018. The situation in Qatar could threaten to break the united front of energy producers. The last time there was political infighting it was in all places during the Doha summit to discuss the original production freeze. The deal was dead on arrival as Iran was not going to participate and Saudi Arabia prefer to end the talks. It remains to be seen which side does Iran aligns itself with, although it would be hard to visualize an allegiance with Saudi Arabia over Qatar. The US crude inventories numbers to be released on Wednesday will bring some raw data for traders to better price in this current development.
US shale production keeps increasing as prices have been in current ranges that make drilling profitable. New technologies are in the horizon that could take US supply even higher and put more pressure on the OPEC and other major producers such as Russia.
Market events to watch this week:
Tuesday, Jun 6
12:30am AUD Cash Rate
9:30pm AUD GDP q/q
Wednesday, Jun 7
10:30am USD Crude Oil Inventories
9:30pm AUD Trade Balance
Tentative CNY Trade Balance
Thursday, Jun 8
All Day GBP Parliamentary Elections
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
8:30am USD Unemployment Claims
Friday, Jun 9
4:30am GBP Manufacturing Production m/m
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
