CAD/JPY
Last week the Yen ended up one of the weakest currencies. Although President Trump announced an additional $200 biliion dollars on China imports there were two key factors that meant the yen was not bought up:
- The tariffs don't come in until September, so they can be lifted quickly and may even be removed before Septemeber
- China demonstrated a restrained response and , although they have pledged to retaliate, there are no details through yet.
So, if this scenario is to continue, with JPY being sold, the CAD/JPY pair looks interesting.
Last week we had, in what is becoming normal now, the market trying to settle with Poloz as to what his views really are for forward guidance for the BOC. Watching the press conference after the rate statement was a nervy watch, because you know that Poloz could lean both bullish and bearish on the same day. The rate statement can signal one outlook and the press conference another, different one. The net result was that he was leaning more bullish than the market expected and Cad was bought up initially as higher rates were being signalled. However, that move was faded as Poloz expressed his nervousness about the US trade wars and the NAFTA arrangement and how these factors could affect the projection of higher rates to come. This Friday we have June CPI inflation out of Canada and May's retail sales, so any uptick in those data points could have the markets re-focusing on a bullish Cad outlook in line with the BOC. Overall the message was more bullish than expected. However, a falling oil price as well as the caveats to his hawkish comments mentioned above led to a cautious CAD response.
On the CAD/JPY pair a pullback can be favoured for buying oppurtunities as we may see even further yen weakness as the bearish flattening of the US treasury curve is helping push USD/JPY higher.
Risks to trade : China retaliates against trade tariffs.
