US Dollar Weakens Against Commodity Currencies as Oil Prices Surge

The US dollar weakened against the euro and a group of commodity currencies on Monday, as oil prices surged following reports of an extension for a deal that reduces oil output of major producers. Demand for the greenback was muted today as traders anticipate major data releases later this week, including the number of building permits in April and a new report on manufacturing activity in Philadelphia this month.

Saudi Arabia and Russia agreed on Monday to extend crude production cuts for nine months until March 2018 to keep a global crude oversupply in control, which pushed oil prices higher. The agreement between the two countries, which are the two biggest oil producers in the world, comes ahead of the end of a deal reached in 2016 that limits crude production until June.

Today’s statement from the two major producers was made 10 days ahead of a meeting between members of the Organization of the Petroleum Exporting Countries and other major producers in Vienna on May 25. The meeting, which includes Russia and 10 more countries outside OPEC, will aim at gathering more support for extending the current limited output deal that removed as many as 1.7 million barrels from the global supply.

Oman was among the countries that announced their support for extending the deal 9 more months, while Iraq said that it would agree to an extension of only 6 months. On the other hand, Kazakhstan, which is not an OPEC member, said it might not join the extension agreement.

The Canadian dollar, which is closely tied to crude prices amid Canada’s sizable oil exports, moved higher against its US peer today. Other commodity currencies like the Australian dollar and the New Zealand dollar also climbed against the greenback.

In today’s economic news, the housing market continued to strengthen as an index of builders’ sentiment rose to 70 in May from 68 in April, according to the National Association of Home Builders. The new reading, which matched expectations, shows that conditions in the housing market improved despite higher building material costs and shortage of labor.

A separate report by the Federal Reserve Bank of New York said that an index that tracks business activity weakened -1.0 in May from 5.2 in April, which disappointed estimates of a reading at 7.0. Smaller number of new orders and fewer shipments indicated that business activity is slowing down after 6 months of strong conditions.

EUR/USD rose to 1.0976 as of 20:40 GMT on Monday from 1.0988 at 13:40 GMT, the pair’s highest level since May 8. EUR/USD began the week at 1.0932. USD/CAD declined to 1.3628 after touching 1.3602 at 13:05 GMT for the first time since April 27. USD/CAD started the day at 1.3703.

AUD/USD traded at 0.7414 from 0.7445 at 13:05 GMT, a level last seen on May 3, after kicking off trading today at 0.7388. NZD/USD rose to 0.6913 at 10:50 GMT before erasing some of its gains to trade at 0.6878. NZD/USD was at 0.6851 when the day began.

The Dollar Index, which tracks the performance of the US currency against its major peers, declined to 98.91 as of 20:41 GMT today from 99.25 on Friday.

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