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Canadian Dollar Forecast: CAD/JPY Primed to Claw Back Downside

Canadian Dollar Forecast: CAD/JPY Primed to Claw Back Downside

Rich Dvorak, Analyst
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CAD/JPY PRICE OUTLOOK: CANADIAN DOLLAR TO REBOUND ON HAWKISH BOC TILT

CAD/JPY selling pressure could be subsiding as the Canadian Dollar regains its footing following a relatively hawkish shift in BoC interest rate guidance. Not only did the Bank of Canada announce that it is tapering weekly asset purchases from C$4-trillion to C$3-trillion, the central bank also brought forward its next projected rate hike from 2023 to the second half of 2022.

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The BoC upgraded Canada GDP growth estimates for this year as well, from 4.0% to 6.5%, due to economic activity being more resilient than expected and a robust recovery in business investment. This all looks to be broadly supportive of the Canadian Dollar and CAD/JPY price action.

CAD/JPY PRICE CHART: DAILY TIME FRAME (14 DEC 2020 TO 22 APR 2021)

CADJPY Price Chart Canadian Dollar Technical Forecast

From a technical perspective, however, the Canadian Dollar still seems to be stuck in a short-term downtrend against its Japanese Yen peer. Invalidating this descending trendline, perhaps with a close above the 21 April swing high, could tee up CAD/JPY for a bigger rebound.

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Eclipsing the 20-day simple moving average might bring year-to-date highs into focus for Canadian Dollar bulls. On the other hand, should CAD/JPY price action stay under pressure, the bottom Bollinger Band has potential to curb Canadian Dollar weakness.

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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