Good morning. The dollar is on course for a fifth consecutive daily gain as a hawkish repricing of the Federal Reserve’s expected policy path rolls on. Richmond Fed president Thomas Barkin yesterday joined many of his colleagues in suggesting that repeated supply shocks could endanger the central bank’s price-stability mandate, and warning that further tightening may be needed. Markets are now putting the odds of an October hike at more than 50%—with a total of three moves priced in by next June—and rate differentials have tilted further against all of the dollar’s major rivals, contributing to losses in spot markets.

Oil benchmarks are steadying after five straight days of losses, with front-month Brent futures trading for around $100 a barrel. The slide has had three drivers: signs of a recovery in Saudi exports, a rise in US stockpiles, and hints of a thaw between Washington and Tehran. Saudi Arabia has reportedly restarted its East-West pipeline and could soon resume exports from its Yanbu terminal, easing the strain on global markets. The latest data from the American Petroleum Institute, an industry group, showed American crude inventories rising by 1.7m barrels last week, against expectations of a 578,000-barrel draw. And President Donald Trump yesterday described recent talks with Iranian officials as “very productive”*, again raising hopes that he will seek an exit ramp before November’s mid-term elections.

The Canadian dollar is trading firmly below the 1.40 threshold. Markets, we think, are bracing for some softness in the economy in the coming months as US tariffs hit targeted sectors, and consumers and firms rein in spending and investment. The government’s tax reforms, its courting of investors and its push to sell more to the European Union should pay off over time, but the effects will be incremental and slow to arrive.

=The loonie’s weakness, however, is largely a function of the dollar’s strength. So far in September, the Canadian dollar has fallen by less than the euro, the pound, or the yen—and there may be tailwinds ahead. Ottawa’s renewed focus on cutting red tape and building energy infrastructure should tighten the linkage between oil prices and the exchange rate by raising expectations for capital spending over time**. There is an irony, too: by cutting taxes, spending more, and waging war in the Middle East, the US government is creating a fundamentally favourable backdrop for Canadian exports.

Geopolitical headlines could dominate price action in the days ahead, with a meeting between Xi Jinping and Donald Trump likely to capture investor attention even if no material developments emerge. The dollar, meanwhile, should remain supported as traders maintain a hawkish view of the Fed’s policy trajectory while pricing in some softness in other trading blocs. This has further to go—particularly in the euro area, where monetary tightening expectations look clearly overegged—but we think the dollar’s upside could be capped, with the “US exceptionalism” trade once again on fragile footing. Hedgers with positive exposure should look to crystallise some gains where they can.

*He also said he might “annihilate” Iran, but hey, what’s a little annihilation among friends?

**A dynamic that has been largely been absent since the 2015 oil price collapse.