Intraday Market Thoughts

USD up on CNY Rumblings

by Adam Button
Jun 27, 2018 11:41

How is oil rising despite a rally in the US dollar? The greenback gained from a better tone on trade Tuesday while oil jumps on reports of tougher Iran sanctions. This may well be related to the latest selloff in the Chinese yuan, which is set to post its biggest weekly decline against USD since January 2016. Could Beijing be resorting to currency devaluation in the US-China trade war? Don't forget BoC's Poloz speech this evening (15:00 Easten, 20:00 London) for signs on his latest thoughts on monetary policy following last week's dismal data and this month's surprisingly hawkish statement twist.

When China's currency tumbles, we tend to see a selloff in in global equities, commodities and a higher US dollar. Oil was the exception due to US State Dept story mentioned below. The selloff in equities dragged down bond yields, consquently lifting the yen.

The oil headline driver on the day was a report, citing a State Dept. official that said the US wants allies to cut Iran oil exports to US allies to zero by November 4. That's a much harsher and firmer policy than under previous sanctions when buyers were given repeated 6 month extensions so long as they progressively lowered Iranian imports by 20%. In turn, WTI crude jumped nearly 4% to $70.70, the highest in a month.

The rise in oil had little effect on USD/CAD because of apprehension about Poloz's speech late on Wednesday. The pair chopped around 1.3300. The Australian dollar fell down to 0.7360 as copper prices slipped again. The CADJPY trade in the  Premium Insights remains in the green, as a new indices trade is currently being reconsidered.

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