The Canadian dollar rose against its US counterpart on Monday to erase losses it had posted earlier following a drop in oil prices. A slew of economic releases in the United States uncovered lackluster data, which weighed on the US dollar and gave way for the loonie to move higher today.
Despite initial gains, oil prices declined today as a political rift between Qatar and other Arab countries widened. Saudi Arabia, Egypt, United Arab Emirates, and Bahrain cut their diplomatic ties with Qatar after accusing the gulf state of supporting fundamental Islamists and terrorists.
The political move came only two weeks after the visit of US president Donald Trump to the region, during which he asked Arab states to fight terrorism and work on cutting support for it. The new escalation also appears to be targeting Iran, which viewed this development as a direct outcome of Trumpâs visit to Riyadh.
The decision to cut diplomatic relations also included a closure of transport ties with Qatar, which is expected to wreck havoc within the nation that is readying for FIFA World Cup in 2022.
Furthermore, the move will hamper efforts aiming to extend an agreement that limits crude output from major producers inside and outside the Organization of the Petroleum Exporting Countries. The agreement, which was made in November 2016, was one of the main factors that lifted oil prices higher after crashing to less than $30 per barrel.
The Canadian dollar initially dropped today on fears that both Iran and Qatar may refuse to extend the agreement, which would add to the negative effect of rising oil production in the United States. The loonie is closely tied to crude oil since it is one of Canadaâs main exports.
However, weak business activity data in the United States weighed on the nationâs dollar today. A new reading for the non-manufacturing purchasing managersâ index from the Institute for Supply Management showed a drop to 56.9 in May from 57.5 in April. The fresh reading disappointed expectations of a 0.5 drop and added to a stream of recent economic data that signaled weaker economic growth than investors had hoped for.
USD/CAD weakened to 1.3473 at 21:30 GMT on Monday from 1.3498 at 17:30 GMT, the pairâs highest level today. USD/CAD began trading this week at 1.3490.
If you have any questions, comments or opinions regarding the Canadian Dollar,
feel free to post them using the commentary form below.
