CAD/JPY rebounds on Canada data and BoC rate hike speculation

• The CAD/JPY pair rises 0.72% to 108.38 after the Canadian jobs report beat expectations, adding 15,000 jobs and putting the unemployment rate at 5.5%.
• The odds of a Bank of Canada rate hike by the end of the year rise from 36% to 44%, following the 5.2% wage increase in August.
• Japanese GDP growth in the second quarter disappoints expectations, standing at 4.8% year-on-year, but fails to boost the Yen as Canadian data takes center stage.

The Canadian Dollar (CAD) posted solid gains against the Japanese Yen (JPY) on Friday, after an upbeat Canadian jobs report sparked speculation that the Bank of Canada would raise rates at a later meeting. This fact and investors’ risk appetite weighed on the Yen’s safe haven position. At the time of writing these lines, the pair CAD/JPY It trades at 108.38, up 0.72% or +77 points.

CAD gains ground against Yen as strong employment numbers fuel rate hike expectations, overshadowing Japan’s sluggish GDP growth

Statistics Canada revealed that the Canadian economy created more jobs than expected, 15,000, in August, with 39,900 people entering the workforce, while the unemployment rate stood at 5.5%. The labor market has remained firm, despite the Bank of Canada (BoC) raising rates ten times since March 2022.

Digging deeper into the data, a measure of wages rose 5.2% in August, up from 5% in July, increasing the chances that the BOC will intervene and raise rates. Notably, the BOC left rates unchanged on September 6 at 5%, but following the release of the data, money market futures show a 44% chance of another BOC rate hike by the end of the year, up from 36% before the jobs report reported.

The data comes a day after BOC Governor Tiff Macklem said interest rates may not be high enough to balance supply and demand and reduce inflation. The BOC’s decision to keep rates unchanged was attributed to the second quarter of 2023 unexpectedly contracting by -0.2%, a sign that the economy may have entered a recession.

Aside from this, data from Japan showed the economy growing more slowly than expected, with Q2 GDP at 4.8% year-on-year, below the 5.5% estimate. Although negative, a risk aversion impulse benefited the yen during the Asian and European sessions. However, as Japanese authorities remained mute about possible intervention in the currency market, it was overtaken by the Canadian data.

Therefore, further increases in CAD/JPY are expected, although we must be cautious in the face of threats of intervention and price overload.

CAD/JPY Price Analysis: Technical Outlook

Technically, CAD/JPY has a neutral upward bias, remaining above the Ichimoku (Kumo) cloud but not reaching the year-to-date high at 109.50. A decisive breakout would expose the psychological level of 110.00 before testing last year’s high at 110.52. If it fails at 109.50, sellers will overtake buyers and drag prices towards the Tenkan-Sen line at 107.61, before extending their losses to the Senkou-Span A line at 107.39. If it breaks below, the pair would fall towards the Kijun-Sen at 107.18.