The Canadian dollar is trading higher on Tuesday, finding support from rising crude oil prices and a lower US dollar. The loonie has risen to its best level in eight weeks against the greenback, and it could add to its gains on reports that an updated North American Free Trade Agreement (NAFTA) proposal has been submitted.
US-Iran tensions are intensifying after Washington slapped new sanctions on Tehran, one of the biggest oil producers in the world. Under President Donald Trumpâs latest sanctions, Iran will be prohibited form using US dollars, trading in precious metals, and acquiring US and European aircraft. Some of the sanctions went into effect immediately, and more severe sanctions are set to for the next 90 days.
The move is seen as restraining international oil supplies, a boon for energy markets, especially as the Organization for Petroleum Exporting Countries (OPEC) is increasing its output once again. September West Texas Intermediate (WTI) crude futures advanced $0.30, or 0.43%, to $69.31 per barrel on the New York Mercantile Exchange. October Brent crude futures surged $0.91, or 1.23%, to $74.67 a barrel on Londonâs ICE Futures exchange.
In addition to the recent geopolitical developments, investors fear that the greenbackâs three-month rally, which has occurred on the back of escalating trade tensions, may finally come to an end. On Tuesday, the US Dollar Index tumbled 0.15% to 95.21, but it is still up more than 1% over the last month.
Traders do not seem to be bothered by the latest spat between Canada and Saudi Arabia. Following a tweet by Foreign Affairs Minister Chrystia Freeland that lamented on Saudi Arabiaâs domestic affairs, the oil-rich nation expelled Canadaâs ambassador and recalled more than 7,000 Saudi students.
The loonie may get a boost this week after Mexican Minister of the Economy Ildefonso Guajardo stated on Monday that his government has submitted a proposal to update NAFTAâs rules of origin. This pleased some analysts because it suggested that negotiations are occurring, despite the paucity of advancements.
Local commentators do note that Freeland may be negatively affecting NAFTA talks, particularly on automobiles. Moreover, it has been reported that US Trade Representative Robert Lighthizer dislikes Freeland, something that may impact negotiations moving forward.
The loonie seemed to be unfazed by recent data that found expansion of purchasing activity slowed in July, despite employment levels rising at a more modest pace. The Ivey Purchasing Managersâ Index (PMI) slipped to 61.8 in July, from 63.1 in June, the lowest since March. Anything above 50 indicates an overall increase.
The USD/CAD currency pair surged 0.44% to 1.3063, from an opening of 1.3004, at 18:09 GMT on Tuesday. The EUR/CAD soared 0.71% to 1.5131, from an opening of 1.5022.
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