Bias: CAD/JPY sits above its 90-day average and in the upper half of the 3-month range, yielding a bullish-to-range-bound bias that favors gradual upside within a defined corridor.
Key drivers:
- Rate gap: BoC's policy rate sits notably higher than BoJ's, supporting CAD resilience versus JPY even as risk appetite fluctuates.
- Oil trend: Oil remains supported, trading near multi-week highs and above its longer-term average, which tends to lift CAD due to Canada’s role as a major oil exporter.
- Macro factor: BoJ has signaled tightening with potential further hikes if inflation persists, a development that could limit yen softness and cap further CAD gains.
Range: CAD/JPY is likely to drift within the 3-month range, with a tilt toward the upper end as oil support persists, but without a clear breakout.
What could change it:
Upside risk: A sharper oil rally or stronger Canadian data that keeps the BoC on a higher-rate path and extends the CAD outperformance versus the yen.
Downside risk: A renewed yen rally on further BoJ tightening or a drop in oil that narrows the CAD’s advantage and drags the pair lower.
