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Trading conditions tightened ahead of the Independence Day holiday in the U.S.A. today. Even so, demand for the Loonie quite noticeably picked up during the course of session. The Swissy and the yen, meanwhile, showed weakness, even though risk aversion apparently prevailed.

Other noteworthy currencies include the Aussie since it was mixed but mostly in recovery mode after plunging in the wake of the RBA statement earlier. Another noteworthy currency is the Greenback since it was initially the top dog of the session (for what it’s worth since gains were small) before demand for the Loonie got revived.

  • Spanish unemployment change: -98.3K vs. -120.3K expected, -111.9K previous
  • U.K. construction PMI: 54.8 vs. 55.0 expected, 56.0 previous
  • Euro Zone PPI m/m: -0.4% vs. -0.2% expected, 0.0% previous
  • Euro Zone PPI y/y: 3.3% vs. 3.5% expected, 4.3% previous

Major Events/Reports

BOC Boss-Man Poloz Speaks

Handelsblatt Global’s interview with BOC Boss-Man Stephen Poloz was published earlier today.

And a quick reading shows that Poloz is still concerned with certain risks. And the U.S., Canada’s main trading partner, was cited as one of the biggest.

Still, when Poloz was directly asked if the BOC is thinking about switching to a hiking bias, Poloz answered as follows:

“As our senior deputy governor said a week ago, when you are driving towards a red stoplight, you ease up on the accelerator well before you get there instead of waiting for the last second to stop. I think the same thinking is true in monetary policy, because you must anticipate where the economy will be 18 or 24 months from now. If we only watched inflation and reacted to inflation, we would never reach our inflation target, we’d always be two years behind in the reaction. So we have to look at the rest of our indicators in the models that predict inflation.”

That, plus his optimistic view on the Canadian economy, heavily hints that the BOC may indeed be switching to a hiking bias sooner or later, perhaps as early as next week’s BOC statement.

Moving on, Poloz was asked if the volatility of oil prices will have an effect on the BOC’s decision next week, Poloz just shrugged that off and said the following:

“It will figure, but I do not see that as the big issue of the day. Not yet anyway.”

And when Poloz was asked about Canada’s housing market problems, especially the rise in housing debt, he had this to say (emphasis mine):

People have a buffer in their finances in case interest rates do rise. There’s quite a resilient structure to the market. Even though the stock of debt is rising, we believe what is happening is that the new households with no debt are buying their first home and taking on the debt. That adds to the stock of debt but it makes it no less resilient, because they are well qualified for the debt.”

U.K. Construction PMI

Earlier today, we got the U.K.’s construction PMI report for the June period.

And like yesterday’s manufacturing PMI report, the contruction PMI report was also a miss since the headline reading came in at 54.8 (55.0 expected, 56.0 previous).

Commentary from Markit blamed the weaker reading on “business activity, new work and employment all expanding at slower rates than in May.”

And the slowdown in those factors, according to survey respondents, was due to “signs of renewed risk aversion among clients, reflecting concerns about the economic outlook and heightened political uncertainty.

Commodities whupped but precious metals shine

Commodities had a reversal of fortune during today’s morning London session since most commodities found themselves taking losses. Precious metals, which were losing out yesterday, ending up gaining today, however.

Precious metals were in the green, defying the broad-based commodities rout.

  • Gold was up by 0.56% to $1,226.08 per troy ounce
  • Silver was up by 0.35% to $16.093 per troy ounce

Base metals got hit hard across the board.

  • Copper was down by 0.67% to $2.675 per pound
  • Nickel was down by 1.98% to $9,147.50 per dry metric ton
  • Zinc was down by 1.10% to $2,777.00 per dry metric ton

Oil benchmarks also felt the pain but were off their lows by the end of the session.

  • U.S. WTI crude oil was down by 0.25% to $46.95 per barrel after reaching a low of $46.74 earlier
  • Brent crude oil was down by 0.32% to $49.52 per barrel after reaching a low of $49.30 earlier

Market analysts say that the extra hard slump in base metal prices was due to profit-taking after the recent rally, although expectations of higher supply levels applied extra bearish pressure on some metals like nickel.

The slide in oil prices, meanwhile, was blamed by market analysts on profit-taking ahead of the Independence Day holiday in the U.S.A. No clear catalyst for the later signs of demand, though.

As for the rise in precious metals, that was very likely to the returning risk-off vibes in Europe. Although some market analysts directly blamed earlier news about North Korea’s missile launch as triggering safe-haven demand for precious metals.

Risk aversion returns in Europe

After yesterday’s optimistic start to the week, a wave of risk aversion slammed into European equity indices, sending them lower.

  • The pan-European FTSEurofirst 300 was down by 0.26% to 1,505.47
  • Germany’s DAX was down by 0.25% to 12,443.50
  • The blue-chip Euro Stoxx 50 was down by 0.25% to 3,482.50

Market analysts attributed the returning risk-off vibes to the commodities slide, with focus on easing oil prices.

Major Market Mover(s):

CAD

The Loonie was apparently tracking oil prices since it dipped at the start when oil prices were in retreat and then recovered when oil prices started to recover.

Aside from tracking oil prices, it’s highly likely that the Loonie also got some love because of BOC Boss-Man Poloz’s hawkish rhetoric earlier.

AUD/CAD was down by 13 pips (-0.13%) to 0.9870, EUR/CAD was down by 29 pips (-0.19%) to 1.4727, GBP/CAD was down by 36 pips (-0.21%) to 1.6777

JPY & CHF

The safe-haven yen and Swissy both felt some selling pressure, which is rather weird because risk aversion was apparently the dominant sentiment during the European session.

It’s possible that the SNB may have been using the muted session and Independence Day holiday as an opportunity to weaken the Swissy.

However, there’s no clear reason for the yen’s weakness since bond yields were either stable or sliding during the session, which should have boosted the yen.

But then again, we did get that news about North Korea’s missile launch earlier, which may have spooked some yen bulls.

USD/CHF was up by 25 pips (+0.26%) to 0.9648, CAD/CHF was up by 20 pips (+0.27%) to 0.7436, AUD/CHF was up by 11 pips (+0.15%) to 0.7340

USD/JPY was up by 34 pips (+0.29%) to 113.18, CAD/JPY was up by 27 pips (+0.32%) to 87.22, NZD/JPY was up by 20 pips (+0.25%) to 82.42

Watch Out For:

  • 1:30 pm GMT: Canada’s manufacturing PMI (55.1 previous)
  • Dairy auction currently underway (-0.8% previous); auction usually ends at around 2:00 pm GMT
  • Independence Day holiday in the U.S.A. today