Iran has said that Saudi Arabia has bombarded the Iranian embassy in Yemen. The attack in Sana’a has reportedly injured a few guards and serves as another escalation between the two regional powers which are big oil producers.
Iran has also banned imports from Saudi Arabia in the latest round of escalation since the Sunni Kingdom executed a Shiite dissident over the weekend, in a move that deteriorated relations.
The Yemenite embassy incident and the Iranian ban are the latest moves in a crisis that seemed to drift away from our attention just yesterday.
The mood in markets is becoming worse, but oil has a reason for rising. So, we have further strengthening of the safe haven Japanese yen and the euro across the board on safe haven flows, but a weakening of risk currencies such as the Aussie dollar. AUD/USD is under 0.70.
For the Canadian dollar, this escalation is positive: higher oil prices support the loonie. However, the gloomy mood is quite unhelpful. USD/CAD is off the highs at 1.4124, but once tensions subside and oil resumes its falls on over-supply, we could see another fall in CAD.
Here is the chart of WTI crude oil. It already fell below the GFC lows of $32.70 but is now recovering over $33.
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