After a strong bull market that lasted from November 2016 (following Trump's victory) to January 2017, CAD/JPY reversed for many months until June. Since then, the exchange rate has strengthened thanks to underlying strength in the Canadian dollar. The loonie has been supported in the latter half of 2017 by strong economic growth and interest rate hikes.
The Canadian dollar is mixed today. The loonie is currently selling off against the US dollar, while strengthening against the euro and the British pound. Yesterday, the Canadian dollar continued to weaken against the US dollar, and is currently trading near 12-month lows. Today's USD/CAD trading range is 1.3070 - 1.3330.
As the outlook for Canada darkens, the odds of a Bank of Canada rate hike are falling. This can be seen in falling bond yields for short-term Canadian government bonds. While 2-year US Treasury bond yields continue to rise (and are currently yielding 2.56%), equivalent bond yields in Canada are falling and are currently yielding just 1.85%. Beyond the differential in bond yields (0.71%), yields are also moving in the opposite direction. This is a particularly bearish sign, and suggests that the Canadian dollar is likely to keep weakening.
Beyond bearish signals from the bond market, the Canadian dollar remains under pressure thanks to decelerating growth, ongoing trade tensions and weakness in crude oil prices. More recently, the Canadian real estate market is also showing signs of jitters, with sales volumes falling to a nine year low according to recent figures from the Canadian Real Estate Association. With plenty of reasons for the currency to keep weakening, our outlook on the loonie remains bearish. Note that there are no major updates relating to NAFTA today.
The USD/CAD exchange rate is currently above 1.3320. The euro is down against the Canadian dollar, with EUR/CAD currently above 1.5350. The pound is down slightly against the Canadian dollar, with GBP/CAD trading above 1.7460. CAD/JPY is flat, and currently trading above 82.80.
|June 21||ADP Employment Change MAY||30.2K|
|June 21||Wholesale Sales MoM APR||1.1%|
|June 22||Inflation Rate YoY MAY||2.2%|
|June 22||Core Inflation Rate YoY MAY||1.5%|
|June 22||Retail Sales YoY APR||4.1%|
The Japanese yen is weakening against all currencies except the British pound today. The yen weakened yesterday after US Federal Reserve Chair Powell suggested that the case to raise US interest rates was "strong". His comments sent US Treasury bond yields higher, and also pushed up yields for many other developed country government bonds. Today's USD/JPY trading range remains 109.50 - 111.20.
The main short-term driver behind the yen remains rising US Treasury bond yields and overall strength in the US dollar. Thanks to accelerating US growth and inflation, the US currently has the best economic outlook of any major country in the world. A combination of relatively strong US growth and supportive risk sentiment is helping the yen weaken further.
Turning to other developments, Bank of Japan board member Funo said that Bank needs to focus on weak inflation. Funo said that the BoJ should continue its powerful monetary easing policies, while risks for weak inflation over the long-term were large. Governor Kuroda recently acknowledged weak inflation, and promised to deepen the debate regarding its causes at next month's meeting. Recent communications from the BoJ suggest that the Bank remains committed to its existing policies. Thanks to a slowdown across Europe and Asia, Japanese monetary policy is not expected to tighten at any point in the near future. Our outlook on the Japanese yen remains bearish.
|June 18||Adjusted Merchandise Trade Balance MAY||-¥300.0b||¥550.0b|
|June 20||BoJ Monetary Policy Meeting Minutes|
|June 20||BoJ Kuroda Speech|
|June 21||Foreign Bond Investment 16/JUN||¥1490.4b||-¥475.6b|
|June 21||Stock Investment by Foreigners 16/JUN||-¥40.8b||-¥108.3b|
|June 21||BoJ Funo Speech|
|June 22||Inflation Rate YoY MAY||0.6%|
|June 22||Core Inflation Rate YoY MAY||0.7%|
|June 22||Nikkei Manufacturing PMI Flash JUN||52.8|
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