IC Markets

CAD Turns Bullish after BoC Puts Benchmark Rate at 1 Percent

Canadian DollarLast week, the Bank of Canada left the benchmark rate unchanged at 1 percent which in turn made the Canadian Dollar fell against Yen currency.

While the analysts were hoping for the similar decision from Bank of Canada, the market is not happy because no hint was given regarding the future rate hike.

The CAD/JPY currency pair is trading at 88.30 levels at the moment and in coming weeks, it is likely that the currency pair would turn bullish. The reason for the same is discussed below.

Recently a conference was held in Switzerland where Haruhiko Kuroda, the Governor of Japan said about a possible rate hike in the yield targets of the bank due to changes made in the financial system and improvement in the economy.

The Governor further said that Japan’s Central Bank is aware of the poor financial condition of the regional banks due to the poor monetary policy. But the governor pointed out that current shape of the yield curve is correct. It means that the Central Bank of Japan is in no mood for a rate hike shortly.

Haruhiko Kuroda said that he would take all the possible measures to achieve the inflation goal of 2 percent. In the past, the central bank was not able to control the inflation through asset purchase program, and now the bank is targeting last year’s interest rates. The Central Bank of Japan is maintaining a negative interest rate of 0.1 percent and 10-year bond yield around 0 percent.

Jackie Marvella

Masayuki Kichikawa, the strategist from Sumitomo Mitsui Asset Management, commented on the statement made by the Governor by saying that he expects the Central Bank of Japan to get rid of negative interest rates in the first half of 2019.

The GDP growth of Japan in Quarter 3 rose up by 0.6% from the earlier estimated figure of 0.3 percent. It has triggered a recovery in Nikkei Index which closed at 22,811.08 on December 7, 2017. Yen has also turned weak due to the reversal of Nikkei index because the former shares are inversely proportional to the safe-haven asset. On the other hand, the upbeat capacity utilisation rate and robust housing data have made the Canadian Dollar turn bullish.

As per the CMHC (Canada Mortgage and Housing Corporation), there is a growth of 252,000 in central housing starts in November 2017 as compared to 223,000 in its previous month. Analysts were hoping for a figure of 214,000.

Likewise, there is a growth of 85% in the Capacity Utilisation Rate in Quarter 3 from a figure of 84.3% in the earlier quarter. The increase was primarily due to good performance in electric power and construction sector. Hence, Loonie turns bullish due to robust economic data and Yen becomes weak due to a dovish stance of Bank of Japan’s Governor.

The CAD/JPY currency pair has bounced back the support level at 86.75 which is evident from the price chart below. The currency pair bullishness is further supported by rising stochastic oscillator. A bullish reversal in the currency pair is expected.

CADJPY Pair Dec 11th, 2017

CADJPY Pair Dec 11th, 2017

To make profits from this uptrend, traders are advised to open a LONG position in the CADJPY at 88.30 and place a stop loss order below 87.30. Profits can be booked if the currency pair is around 90.30.

Steven Rudford

Steven Rudford

Hello, my name is Steven Rudford. Welcome to Top10FX.net. Follow my website for the most trustworthy Forex broker reviews and last minute financial trading news.

IC Markets

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