CADJPY: Expect Volatility as BoC and BoJ Both Announce Interest Rates

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The CADJPY should see volatility this week as both the Bank of Canada and the Bank of Japan deliver their latest interest rate and monetary policy statements. Both central banks are expected to stay on hold at 0.25% and 0.1% respectively but the press releases could give an indication of future movements.

The recent surge in coronavirus cases will also be a driver for the CADJPY and has seen the Yen strengthen this week. Yesterday’s updated numbers saw only 540 cases in Japan compared to more than 4,000 in Canada so there is the potential for further economic damage for the Canadian economy and this just adds to the Yen’s usual status as a safe haven. With cases rising across Europe and the U.S., the Yen should see a bid on the week.

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The two economies also fared differently in the second quarter with Canada seeing a 20% drop in annual GDP, while Japan’s growth hit was half of that. Japan’s unemployment was also much lower at 3% versus 9%. This dynamic should support the Yen going forward and the only threat to that thesis is that inflation has picked up in Canada to 1%, while in Japan it was near deflation territory again. Despite this, the interest rate decisions will provide projections from the banks on future growth and policy decisions.

Oil was also lower this week with crude dropping into the $38 levels. CADJPY has always been an oil pair as Japan imports its oil and Canada is a big exporter, so the currency rate can swing on this dynamic. Oil has struggled at $40-41 and with the latest lockdown measures set to hit global economies this should continue to be negative for oil and OPEC and will support the Yen.

CADJPY Technical Outlook

The CADJPY is breaking lower from the uptrend channel and could look to move to the support at 78.50 in the days or weeks ahead. The pair would need a close above the 50-day moving average around 80.00 to start a path higher. The Investing Cube team is currently available to help all levels of traders with the Forex Trading Course or one-to-one coaching.   

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CADJPY Daily Chart

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