Dollar fell while safe havens and currencies of oil-producing countries rallied on Monday, following an attack on Saudi Arabian refining facilities that disrupted global oil supply and heightened Middle East tensions.
Oil prices surged nearly a fifth at one point following the strikes on two plants, including the world’s biggest petroleum processing facility in Abqaiq, which knocked out more than 5% of global oil supply.
Yemen’s Iran-aligned Houthi group claimed responsibility for the damage, but the U.S. has pointed the finger directly at Iran.
The Canadian dollar rose 0.4 percent to 1.3233 per dollar. The Norwegian krone rose 0.5 percent to 8.9363 per dollar. Both currencies often move together with the oil price because the countries are major oil exporters.
In India, a major importer of crude, the rupee fell almost 0.7 percent.
“The natural flow through of higher (oil) prices has seen the NOK and the CAD outperform, and we’ll probable see a better feel towards the (Russian) rouble later on,” said Chris Weston, head of research at brokerage Pepperstone Group in Melbourne.
The attacks reversed last week’s ebullient risk appetite and prompted U.S. President Donald Trump to tweet that the United States was “locked and loaded” for a response.
“We’ve got a beady eye on this and we’re prepared to pile back in to the Japanese yen after last week’s repositioning,” Weston said, adding that while trade was calm, the strikes presented another geopolitical “what if” to vex markets.
The safe-haven Japanese yen and Swiss franc both firmed. The yen rose 0.3 percent to 107.79 per dollar and the franc rose 0.4 percent to $0.9883. Gold jumped by 1 percent.
Against a basket of currencies the dollar edged lower to 98.162.
Beyond oil, currency markets are awaiting the outcome of central bank meetings in the U.S. and Japan this week and economic data in Australia and New Zealand that could determine the rates outlook in the Antipodes.
“Geopolitical risks and central bank rhetoric remain key drivers of risk this week,” Australia and New Zealand Banking Group analysts said in a note.
On the Brexit front, British Prime Minister Boris Johnson’s confidence of sealing a deal to leave the European Union by October 31 applied renewed pressure to the pound.
Sterling fell 0.3 from a seven-week high to hit $1.2486.
While much of the risk appetite on display last week was driven by signs of a thaw in U.S.-China trade tensions, few fresh indications of progress left sentiment fragile.
Data released on Monday showed the slowdown in China’s economy deepened in August, with industrial production growing at its weakest pace in 17-1/2 years and retail sales weaker than anticipated.
That added to pressure for stimulus and in offshore trade the Chinese yuan weakened 0.25 percent to 7.0631 per dollar.
In the United States, investors who had begun trimming expectations for a U.S. Federal Reserve rate cut on Wednesday are now certain rates will fall and divided only over how much.
As for the Bank of Japan’s policy decision on Thursday, a third of economists polled by Reuters expect stimulus to be ramped up. But sources say it may be a close call as policymakers wait till the last minute to assess market reaction to the Fed’s decision hours earlier.
Japanese markets are closed on Monday for a public holiday.
The euro was steady at $1.1073.