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European Session – Oil drops sub-$37, dragging loonie to fresh 11-year lows

Risk aversion dominated the currency markets on Tuesday, buoying the yen and the euro. Meanwhile, commodity prices were in focus as crude oil fell to levels last seen in early 2009. As a result, oil-tied currencies remained under pressure, such as the Canadian dollar and the Norwegian crown. A broadly stronger greenback did not help these currencies. Oil fell to $36.63, the earliest since February 2009.

The dollar rose to a fresh eleven-year high against the loonie, hitting 1.3621. Canada is a major producer of crude oil and so its currency is impacted by the recent decline in oil prices. Economic data showing a rise in Canadian housing starts did not help the loonie much. Housing starts jumped to 211,916 units in November from a downwardly revised 197,712 units in October. This was contrary to expectations for a fall to 197,300 starts. Focus now turns to a speech by Bank of Canada Governor Poloz later in the day.

Another oil-linked currency is the Norwegian crown which fell to the lowest since 2002 against the dollar. USD/NOK rose to 8.8190 today.

The euro edged up versus the dollar to reach a high of 1.0897. Data out of the Eurozone today consisted of the release of as-expected revised third quarter GDP, unchanged at 0.3%.

Sterling came under pressure against the dollar to break below the key 1.5000 level to touch 1.4955 from 1.5060.

UK economic data today helped weigh on the pound. For the month of November, the Halifax house price index decreased by 0.2% month-on-month despite a 1.0% gain in October. UK manufacturing output unexpectedly fell 0.4% in October month-on-month, against expectations for it to remain flat. September was upwardly revised to show a gain of 0.9%. Meanwhile, a recent dovish shift in Bank of England rate hike expectations are also helping weigh on sterling.
The yen was in demand due to safe haven flows today and also due to an upward revision to Japan’s third quarter GDP.

The dollar fell against the yen to as low as 122.71 after having reached as high as 123.39 earlier in Asian trading today.

The Australian dollar came under pressure as iron ore prices declined. The aussie reached a new low for the month so far at 0.7185 versus the greenback. Tomorrow’s inflation data from China will be in focus since China is a major trading partner for Australia.

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