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Another day, another set of geopolitical risks! This time, Canada and Saudi Arabia took center stage as the latter targeted trade ties in the middle of a human rights dispute.

It didn’t help the Loonie that liquidity was relatively thin as Canadian traders were just returning from their Civic Day holiday and that data turned out weak.

  • Canada’s Ivey PMI down from 63.1 to 61.8 vs. 64.1 forecast in July
  • U.S. JOLTS job openings unchanged at 6.66M vs. 6.74M forecast
  • U.S. IBD/TIPP Economic Optimism index up from 56.4 to 58.0 vs. 57.2 consensus
  • New Zealand GDT index printed flat reading after previous 1.7% drop
  • U.S. consumer credit down from $24.3B to $10.2B vs. $16.2B forecast
  • Saudi Arabia froze new trade and investment from Canada
  • Saudi recalled its ambassador to Canada and barred Canadian envoy from returning to Riyadh

Major Events/Reports:

Rift between Canada and Saudi Arabia

Loonie traders saw red upon returning to the markets as the ongoing dispute between Canada and Saudi Arabia hit the one thing that markets are recently most sensitive about: trade.

You see, the Canadian government has been pushing for the release of jailed human rights activists in the kingdom. Now Saudi Arabia has accused PM Trudeau and his Liberal government of interfering in internal affairs.

With that came drastic measures such as cutting off new trade and investment from Canada, recalling its ambassador in the country, and barring the Canadian envoy from returning to Riyadh. Saudi also plans to relocate thousands of its students in training and scholarship programs in Canada.

Canadian PM Trudeau has called on its allies to help cool tensions, but the POTUS made it clear that “You’re on your own, bro.” and the British government simply urged both nations to show restraint.

Looking at the bilateral trade relationship between the two nations, however, suggests that the markets may have overreacted. Canada sends roughly $1.2 billion worth of goods to Saudi Arabia, comprising only 0.2% of its total export activity. Just a scratch.

Mostly downbeat U.S. data

Medium-tier economic reports turned out mostly weaker than expected, but these didn’t seem to derail the dollar on its northbound route.

The job openings and labor turnover (JOLTS) figure from the Bureau of Labor Statistics didn’t budge from 6.66 million, even as analysts predicted an improvement to 6.74 million. Although this is June data, it’s worth noting that job openings are leading indicators for future hiring.

Consumer credit data also turned out to be a disappointment as borrowing was roughly cut in half from $24.3 billion in May to $10.2 billion in June versus expectations at $16.2 billion. As it turned out, credit card debt was down 0.2% likely due to tighter bank standards being set.

Still, Wall Street was in a good mood for the session:

  • Dow 30 index is up 126.73 points to 25,628.91 (+0.50%)
  • S&P 500 index is up 8.05 points to 2,858.45 (+0.28%)
  • Nasdaq is up 23.99 points to 7,883.66 (+0.31%)

Major Market Mover(s):

CAD

Loonie bulls quickly disappeared upon hearing the magic words (trade tensions) as newswires got the latest scoop between Saudi Arabia and Canada.

USD/CAD jumped from 1.2966 to a high of 1.3076, CAD/JPY slumped from 85.74 to a low of 85.13, EUR/CAD popped up to 1.5152, and AUD/CAD surged close to the .9700 handle.

EUR

The euro was able to stage a pretty solid bounce during the New York session, although it’s not clear what catalysts may have driven the move. Profit-taking from earlier declines, perhaps?

EUR/USD advanced from 1.1591 to a high of 1.1607, EUR/JPY caught more gains to 129.21, EUR/GBP climbed to a high of .8963, EUR/AUD is up to 1.5625, and EUR/NZD bounced to 1.7220.

Watch Out For:

  • 11:50 pm GMT: Japanese current account balance (1.85T JPY previous, 1.84T JPY expected)
  • 1:30 am GMT: Australian home loans m/m (0.1% uptick expected, 1.1% previous)
  • 3:00 am GMT: New Zealand quarterly inflation expectations (2.0% previous)
  • 3:05 am GMT: RBA Governor Lowe’s testimony
  • Tentative: Chinese trade balance (smaller surplus of 229B CNY from previous 262B CNY expected)
  • 5:00 am GMT: Japanese Economy Watchers Sentiment index