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A pretty eventful trading session for most of the major currencies, as a mix of economic releases and domestic updates rocked the forex arena.

  • NZ ANZ business confidence declines further, down from -39.0 to -44.9 in July
  • Japan’s preliminary industrial production drops by 2.1% in June vs. 0.3% decline expected, 0.2% slip in May
  • Japan’s housing starts (y/y) drops by 7.1% vs. -2.5% expected, 1.3% previous
  • Japan’s consumer confidence down from 43.7 to 43.5 in July
  • AU building approvals jumps by 6.4% vs. 1.1% expected, -2.5% previous
  • China’s manufacturing PMI dips from 51.5 to 51.2 in July
  • China’s non-manufacturing PMI lower from 55.0 to 54.0 in July
  • BOJ keeps rates at -0.10% as expected, vows to keep them “very low”
  • BOJ: It would take time to hit the 2.0% inflation target
  • BOJ’s Kuroda to conduct a presser at 6:30 am GMT
  • Canada rejected in high-level NAFTA talks?

Major Events/Reports:

BOJ’s policy statement and outlook

After days of speculation, we now know that the Bank of Japan (BOJ) made tweaks to its policies in July.

The BOJ will still apply a -0.1% interest rate on the balances of financial institutions with the central bank.

What caught our attention, though, is the BOJ sharing its plans to “maintain the current extremely low levels of short- and long-term interest rates for an extended period of time.

Apparently, the BOJ’s decision to implement forward guidance is an attempt to “strengthen its commitment to achieving the price stability target.

The BOJ also maintained that they still want 10-year JGB yields “at around zero percent.”

However, the central bank added that “the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices,” and that “the Bank will conduct purchases in a flexible manner” even as it maintains its annual pace of 80 trillion yen.

Meanwhile, to address concerns that a negative interest rate policy is cutting into banks’ profits, the BOJ is now reducing the amount of financial institutions’ current account deposits to which negative interest rates will be applied.

Last but not the least, BOJ officials have decided to switch up its ETF purchases to increase its holdings of ETFs that track the Tokyo Stock Price Index (TOPIX).

Can’t really blame the BOJ for making their policies more sustainable. In an outlook report printed today, we can see that ALL of the central bank’s core inflation forecasts were revised lower, and hinted that we won’t see anything close to a 2.0% inflation at least until 2020. Yikes!

Market bees had already buzzed about the BOJ’s possible changes days ago, so today’s set of minor tweaks was a bit of a letdown for those who had expected bigger changes from the central bank.

BOJ Governor Kuroda is set to conduct a presser at 6:30 am GMT to hopefully give more clarity on their forward guidance.

Canada rejected from NAFTA talks?

A report from Canada’s National Post cited “sources familiar with the trade negotiations” and shared that U.S. officials have rejected Canada’s bid to take part in senior-level NAFTA talks due later this week.

U.S. Trade Representative Robert Lighthizer is scheduled to meet Mexico’s Economy Minister Ildefonso Guajardo after last week’s bilateral meetings turned out pretty well.

But National Post’s source said that attempts by Canada’s Foreign Affairs Minister Chrystia Freeland to get a seat at the table were mostly ignored by the U.S. officials.

The move, if true, would be consistent with Ligthizer’s plans to strike a separate deal with Mexico and use it to put pressure on Canada. Just last week he shared that:

“My hope is that we will before very long have a conclusion with respect to Mexico and that as a result of that, Canada will come in and compromise…”

Mixed market reactions

Trade war concerns and a bit of spilloff from the previous sessions’ risk aversion in the equities markets weighed on China’s bourses. Not-so-aggressive tweaks from the BOJ kept Nikkei and Australia’s markets afloat, however.

  • Nikkei is up by 0.23% to 22,596.9
  • A SX 200 is up by 0.07% to 6,279.6
  • Shanghai index is down by 0.03% to 2,868.151
  • Hang Seng is down by 0.55% to 28,574.6

Commodities weren’t as lucky, with gold taking hits on the dollar’s strength following the BOJ’s policy decision. Meanwhile, oil prices were dragged lower by oversupply concerns following reports that OPEC output hit its 2018 highs in July.

  • Gold is down by 0.07% to $1,220.39
  • Brent crude oil is down by 0.43% to $69.75
  • U.S. WTI is down by 0.16% to $75.18

Major Market Mover(s):

CAD

Not surprisingly, talks of Canada being excluded from the NAFTA negotiations table dragged the Loonie lower across the board.

USD/CAD is up by 25 pips (+0.19%) to 1.3060; AUD/CAD is up by 38 pips (+0.40%) to .9693; EUR/CAD is up by 36 pips (+0.24%) to 1.5294; CAD/CHF is up by 18 pips (+0.23%) to .7563; NZD/CAD is up by 15 pips (+0.15%) to .8906, and GBP/CAD is up by 23 pips (+0.13%) to 1.7141.

AUD

Aussie bulls shrugged off slight misses in China’s headline PMI reports. Instead, they concentrated on upside surprises in Australia’s better-than-expected data releases.

AUD/USD is up by 15 pips (+0.21%) to .7422; AUD/JPY Is up by 28 pips (+0.34%) to 85.52; AUD/NZD is up by 28 pips (+0.26%) to 1.0882; EUR/AUD is up by 22 pips (+0.14%) to 1.5778, and GBP/AUD is up by 44 pips (+0.25%) to 1.7683.

Watch Out For:

  • 6:00 am GMT: Germany’s retail sales (1.1% expected, -2.1% previous)
  • 6:45 am GMT: France’s preliminary CPI (-0.3% expected, 0.0% previous)
  • 7:00 am GMT: Spain’s flash GDP (q/q) to remain at 0.7%?
  • 7:55 am GMT: Germany’s unemployment change (-10K expected, -15K previous)
  • 8:00 am GMT: Italy’s monthly unemployment rate (10.8% expected, 10.7% previous)
  • 9:00 am GMT: Euro Zone’s CPI flash estimate (y/y) expected to maintain 2.0% reading
  • 9:00 am GMT: Euro Zone core CPI flash estimate (y/y) (1.0% expected, 0.9% previous)
  • 9:00 am GMT: Italy’s preliminary CPI (0.2% expected and previous)
  • 9:00 am GMT: Euro Zone flash GDP (q/q) (0.4% expected and previous)
  • 9:00 am GMT: Euro Zone unemployment rate (8.4% expected, 8.4% previous)