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Risk appetite from the previous trading session extended its stay in the financial markets, dragging the dollar and yen even lower.

The Loonie got a strong boost from a more upbeat BOC announcement while the euro carried on with its rebound as Italy’s political situation looked a little bit better.

  • U.S. May ADP non-farm employment change down from 163K to 178K
  • U.S. preliminary Q1 GDP downgraded from 2.3% to 2.2%
  • U.S. goods trade deficit at $68.2B vs. $71.2B estimate, $68.3B previous
  • U.S. preliminary GDP price index dipped from 2.0% to 1.9%
  • U.S. to impose import tariffs on EU steel and aluminum
  • Canada’s current account deficit widened to 19.5B CAD vs. 18.1B CAD forecast
  • Canadian RMPI down from 2.1% to 0.7% vs. 2.1% forecast
  • Canadian IPPI down from 0.9% to 0.5% vs. 0.6% forecast
  • BOC kept interest rates on hold at 1.25% as expected
  • BOC dropped reference on being cautious about future rate changes
  • BOC to take gradual policy approach guided by incoming data
  • BOC: Inflation likely to be higher in near-term
  • U.S. Beige Book noted some concerns on trade uncertainty
  • Most U.S. Fed districts saw pickup in manufacturing

Major Events/Reports:

BOC rate decision

As expected, BOC head honcho Poloz and his gang of policymakers agreed to keep interest rates on hold at 1.25% during their May rate decision.

Central bank officials acknowledged that global economic activity remains on track with their earlier forecasts, adding that data points to “some upside to the outlook for the US economy.” However, they were also quick to warn that trade-related uncertainties are still in play.

As for inflation, policymakers predicted that it “will likely be a bit higher in the near term than forecast in April” due to the surge in crude oil but that they will look through these transitory factors.

Their official statement also noted that Q1 economic activity “appears to have been a little stronger than projected” thanks to more robust exports.

Looking ahead, the BOC mentioned:

“Going forward, solid labour income growth supports the expectation that housing activity will pick up and consumption will continue to contribute importantly to growth in 2018.”

Even though officials reiterated the need for a gradual approach guided by incoming data, they concluded that “higher interest rates will be warranted to keep inflation near target.”

Analysts also pointed out that the Canadian central bank dropped their earlier bit on being cautious about future rate moves and the need for monetary policy accommodation.

Mostly downbeat U.S. reports

Uncle Sam’s reports, on the other hand, weren’t all rainbows and butterflies as Q1 estimates were downgraded and the ADP report signaled a possible downside NFP surprise.

The preliminary version of the Q1 GDP was pulled down from 2.3% to 2.2% to account for significantly lower export activity and home investment than initially estimated.

In particular, exports were downgraded from 4.8% to 4.2% while home investment was dragged from a flat reading to a 2.0% decline. Personal consumption also had a negative revision from a 1.1% gain to just 1.0%.

To top it off, the preliminary price index was also lowered from 2.0% to 1.9% to reflect lower inflationary pressures at that time. On a less downbeat note, the goods trade deficit came in at $68.2 billion from the earlier $68.3 billion deficit versus the estimate at $71.2 billion.

Even so, the Beige Book indicated that most Fed districts saw a pickup in manufacturing activity and that the near-term growth outlook is generally upbeat.

Meanwhile, the ADP figure missed expectations as it came in at 178K versus the estimated 191K gain for May. In addition ,the earlier reading was downgraded from 204K to 163K, suggesting that the NFP report might see similar results.

Major Market Mover(s):

CAD

The Loonie rallied sharply as most traders were surprised to get a more optimistic announcement from the BOC. It also helped that crude oil was slightly higher on rumors that the OPEC would likely keep its output deal in place.

USD/CAD fell from 1.3014 to a low of 1.2835 after the BOC decision, CAD/JPY popped up to a high of 84.96, EUR/CAD is down to a low of 1.4918, and GBP/CAD fell to 1.7055.

EUR

The euro was still in a chipper mood throughout the New York session as the lack of negative updates in Italy kept the shared currency mostly afloat, except against the commodity currencies.

EUR/GBP kept climbing to a high of .8778, EUR/CHF popped up to a high of 1.1567, EUR/USD continued to climb to a high of 1.1677, and EUR/JPY is up to a high of 127.31.

USD & JPY

These lower-yielding buddies found themselves behind the forex pack as risk-taking was evident for the most part of the day. Weak U.S. medium-tier data may have also weighed on the dollar.

USD/CHF is down to .9881, GBP/USD advanced to 1.3287, AUD/USD rallied to a high of .7584, and NZD/USD is up to the .7000 mark.

USD/JPY climbed to 109.10 but fell to 108.82 before the end of the session, GBP/JPY is up to 144.88, AUD/JPY rallied to 82.60, and NZD/JPY is up to 76.26.

Watch Out For:

  • 11:50 pm GMT: Japanese preliminary industrial production (1.5% expected, 1.4% previous)
  • 1:00 am GMT: Chinese official manufacturing PMI (no change from 51.4 expected)
  • 1:00 am GMT: Chinese official non-manu PMI (no change from 54.8 expected)
  • 1:00 am GMT: New Zealand ANZ business confidence index (-23.4 previous)
  • 1:30 am GMT: Australia’s private capital expenditure q/q (0.8% rebound from earlier 0.2% dip expected)
  • 5:00 am GMT: Japanese housing starts y/y (-8.8% decline expected)