Another week comes to a close in financial markets and what a week it’s been. We’ve seen three major central bank meetings, each delivering fresh rate hikes in the G10, a change of leadership in the UK as well as comments from Fed chairman Powell. In terms of moves to focus on, its been rich pickings. However, the move that seems to be capturing most attention ahead of the weekend is the near 4% rally in CADJPY. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If you missed it? There’s always next week.

What Caused the Move?

BOC Hikes & Signals More Likely Coming

There have been two clear drivers behind through roughly 350 pip rally we’ve seen in CADJPY this week. The first factor propelling the pair higher was the September BOC meeting on Wednesday. The BOC was seen hiking rates by a further .75% along with signalling the likely need to raise rates further over the remainder of the year. Expectations ahead of the meeting were split with some players looking for the bank to use this meeting as a chance to signal a pause in tightening. However, along with hiking rates to their highest level since 2008, the bank signalled that further hikes will likely be necessary as it continues to battle inflation. With the BOJ firmly committed to maintaining an easing presence in markets, this latest increase from the BOC has further widened the monetary policy divergence between the two central banks, working in CAD’s favour.

JPY Weakens Amidst Risk-On Flows

The second factor working in favour of a higher CADJPY this week is the rebound in risk appetite. With the Dollar dropping midweek, risk markets have seen strong recoveries across the board with equities and commodities benefiting from lower USD pricing. The rebound in oil off the week’s lows has particularly helped CAD. Moreover, the sharp drop in JPY has been the bigger consequence of current market themes. With JPY safe-haven demand disappearing across the back-end of the week, CADJPY has had ample room to move higher and looks likely to remain supported near-term while the current moves continue.

Technical Views

CADJPY

The rally in CADJPY this week has seen price breaking above the prior 2022 highs around 107.19 and trading up as high as 109.70. Th move is currently stalled here. However, with both MACD and RSI bullish, while price holds above the former 2022 highs, the focus is on a further move higher towards 113.22 next.