Overnight market action was dominated by the Bank of Japan interest rate decision which largely disappointed those looking for further stimulative measures
The BoJ left rates unchanged at -0.1% and left the monetary base unchanged as well at 80 trillion yen ($775B)
The one increase in stimulus came via an increase in the amount of exchange-traded funds (ETF's) they would buy, to 6 trillion Yen from 3.3 trillion previously in an effort to ease financial conditions and keep stock markets afloat (note to self: buy Japanese ETF's…)
Market reaction was rather bearish as USDJPY fell as much as 2% as traders bought back the low yielding Yen used to fund higher yielding positions
Risk in general is rather muted today with oil plumbing multi-month lows near the 200 day moving average at $40.70 (-21% decline from June's peak) and equities in the US and Canada point to a lower open
Economic data from both Canada and the US underwhelmed
US Advanced Q2 GDP came in at 1.2%, well below forecasts for a 2.6% print
Canadian GDP for May printed -0.6%, worse than the -0.4% expected
Offsetting these disappointing growth figures however were healthy US Core PCE prices (+1.7%) and employment costs (+0.6%) during Q2
Canadian Producer Prices also rose more than expected at +0.6% compared with a +0.5% forecast for June
The contraction in the Canadian economy during May is the largest since March 2009 and was largely due to the impact of the Fort McMurray wild fires that brought oil and gas and their services industries to a standstill
Greater disappointment comes from south of the border as Q2 growth certainly underwhelmed expectations and was accompanied by downward revisions to Q1 growth as well
The one positive from the report is that consumer spending was responsible for most of the expansion in activity – consumers spent 4.2% more in Q2 – which is excellent news for those bullish on US rates and the US dollar
After the dust settled, USDCAD is back to its highs of the day just under the 1.3200 handle and oil continues to make a concerted effort to break below that key 200 day moving average at $40.70
Chart 1/2: USDCAD consolidating below the 200 DMA as WTI Oil threatens to break through its 200 DMA.
Chart 3: Monthly Canadian GDP for the last two years.