CAD/JPY Declines Amid Policy Divergence Between Canada and Japan
Market Overview
The Canadian dollar (CAD) remains under pressure against the Japanese yen (JPY) as the divergence in monetary policy between Canada and Japan weighs on the pair. A combination of falling oil prices and an interest rate cut by the Bank of Canada (BoC) has weakened the Canadian dollar against most major currencies. Meanwhile, the Bank of Japan’s (BoJ) recent decision to hike rates has bolstered the yen, increasing its attractiveness among G10 currencies.
As global central banks move toward a more accommodative stance, the BoJ’s policy shift stands out, reinforcing a bearish bias for CAD/JPY. Investors are now closely watching key economic data releases from both Canada and Japan to assess how the monetary policy divergence will shape the pair’s trajectory.
Technical Analysis
On the daily chart, CAD/JPY has recently broken out of a symmetrical triangle pattern, signaling an increase in selling pressure. Sellers are attempting to push the pair below the one-month low at 107.310, which has acted as a critical support level. A successful break below this level could accelerate bearish momentum, exposing downside targets at 106.783, 106.112, and 105.371.
Momentum indicators RSI and MACD confirm increasing bearish pressure, with RSI trending lower and MACD histogram bars expanding into the negative zone. Furthermore, Bollinger Bands divergence suggests a continuation of downward momentum, with price action holding within the lower band, reinforcing the bearish trend.
For any bullish reversal, buyers must push the price above 109.249, which represents the upper boundary of the triangle pattern. A break above this resistance would invalidate the current bearish outlook and could drive the pair toward higher levels.
Key Technical Levels
- Resistance Levels: 107.310, 108.051, 109.249
- Support Levels: 106.783, 106.112, 105.371
Fundamental Factors
The Canadian dollar’s weakness has been amplified by the recent decline in oil prices, given Canada’s reliance on crude exports. Lower oil prices typically translate to a weaker CAD, as the currency is heavily correlated with commodity movements.
Meanwhile, the yen’s resurgence is driven by the BoJ’s latest decision to increase interest rates, marking a significant policy shift from years of ultra-loose monetary policy. This move has made the yen more attractive relative to lower-yielding currencies, including the Canadian dollar.
Investors are now focusing on key economic reports from both economies to gauge the next move in CAD/JPY.
Upcoming Key Events
Japan’s Industrial Production Index (Friday) – A stronger-than-expected reading could reinforce yen strength.
Tokyo Core Inflation Report (Friday) – The BoJ’s future stance may depend on this data.
Canada’s GDP Report (Friday) – A slowdown in growth could further weaken the CAD, increasing downward pressure on the pair.
Conclusion
CAD/JPY remains under strong selling pressure as the BoJ’s hawkish shift contrasts with the BoC’s dovish stance. If 107.310 breaks, further downside towards 106.112 and 105.371 is likely. However, a break above 109.249 would be required to invalidate the bearish outlook.
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