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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

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.

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.

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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