LITTLE CHANGE IN CANADIAN DOLLAR The Canadian dollar was little changed against the U.S. dollar on Friday despite a rise in oil prices as increasing violence in Iraq spurred a flight to safety, while hawkish comments by the Bank of England pushed sterling higher. Oil prices surged, with Brent crude slicing through $114 abarrel at one point to a nine-month high and U.S. crude touching as high as $107.68. Both benchmarks looked set to gain almost 5 percent this week, the biggest weekly rise since July 2013. While there have been no disruptions to oil supplies so far, a move by Sunni Islamist militants towards Baghdad has made investors nervous. Higher oil prices often push up the resource-linked Canadian dollar but the impact on the currency on Friday was limited . Its been a quiet overnight session, just 11 points, which is a bit surprising given what were seeing in oil markets. The correlation between oil prices and geopolitical risk is not carrying through to the Canadian dollar. We may see a bit more carry-through if there is an international response in Iraq. The Canadian dollar was at C$1.0861 against the U.S. dollar, or 92.07 U.S. cents, little changed from Thursdays close of C$1.0855 against the greenback, or 92.12 U.S. cents. We expctd the Canadian currency to remain in a tight range in quiet trade on Friday but said the loonie could benefit if upward pressure on oil prices persists. The Canadian dollar showed no reaction to the election of a majority Liberal government in Ontario, Canadas most populous province, on Thursday. Sterling surged on Friday after Bank of England Governor Mark Carney said late on Thursday that British interest rates could rise sooner than financial markets had expected, in a surprisingly stark warning that monetary policy may start to tighten before the end of this year. Thats a contrast to the Bank of Canada, whose governor, Stephen Poloz, said on Thursday that inflation pressures in Canada remained low. The dovish tone has prevented the loonie gaining much ground against the greenback. Canadian government bond prices were mixed across the maturity curve, higher on the short end and lower on the long. The two-year was down 4.5 Canadian cents to yield 1.103 percent and the benchmark 10-year bond was down 20 Canadian cents to yield 2.339 percent. Rising oil prices could hamper global growth and the geopolitical developments are likely to figure in the Federal Reserves latest policy meeting, scheduled for this week. Currently, expectations are for the Fed to begin raising rates about a year from now, and the dollar is seen benefiting from any hawkish comments by the central bank. Unless we have a huge move upward in oil prices, we do not think that the Fed will be too worried about the geopolitical situation, said Geoff Yu, currency analyst at UBS. We expect the Fed to keep withdrawing monetary stimulus and we are positive on the dollar in the medium term. The euro was flat at $1.3540, not far from a four-month trough of $1.3503 hit earlier this month when the European Central Bank eased monetary policy. Sterling hit a peak of $1.7011, its highest since August 2009. Bank of England Governor Mark Carney said on Thursday that rates might rise sooner than financial markets expect, in a surprisingly stark warning that policy may start to tighten before years end. The euro fell to as low as 79.59 pence, a trough not seen since October 2012. The pound was bolstered by comments from BoE policymaker Charlie Bean, who said on Sunday he was optimistic about the economy and would welcome the banks beginning to normalise rates. Fighting in Iraq and Ukraine drove a global shift into traditional safe-haven currencies, precious metals and bonds on Monday, and kept oil near a nine-month high. The nervous mood also spread to share markets where the Nikkei in Tokyo saw its biggest fall in a month and European bourses were deep in the red for the third time in four days. Worries about Iraq were intensifying after Sunni insurgents from the Islamic State of Iraq and the Levant seized a mainly ethnic Turkmen city in the northwest of the country over the weekend. It continued to drive fears about widespread turmoil in the country and the region. Iraq is oil cartel OPECs second largest producer and Brent was up 0.3 percent to $112.70 per barrel in London, although it was a some distance from Fridays nine-month high of $114.69.
Posted on: Mon, 16 Jun 2014 12:10:06 +0000
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