This week, our foreign money strategists centered on the BOC Financial Coverage Assertion for potential high-quality setups.
Out of the 4 state of affairs/value outlook discussions this week, one dialogue arguably noticed each fundie & technical arguments triggered to turn into a possible candidate for a commerce & danger administration overlay.
Watchlists are value outlook & technique discussions supported by each elementary & technical evaluation, an important step in direction of making a prime quality discretionary commerce concept earlier than engaged on a danger & commerce administration plan.
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Try our assessment of that dialogue to see what occurred!
CAD/JPY: Tuesday – June 3, 2025
CAD/JPY 1-Hour Foreign exchange Chart by TradingView
On Tuesday, our strategists had their sights set on the BOC financial coverage assertion and its potential influence on the Canadian greenback.
Primarily based on our Occasion Information, expectations had been for the BOC to maintain rates of interest regular at 2.75%, with members repeating their plans to “proceed rigorously” however “act decisively” if wanted amid ongoing commerce uncertainty.
With these expectations in thoughts, right here’s what we had been pondering:
The “Loonie Raise” State of affairs:
If the BOC maintained a extra hawkish stance or expressed confidence in regards to the financial outlook regardless of commerce headwinds, we anticipated this might enhance CAD. We centered on CAD/CHF for potential lengthy methods if danger sentiment was web optimistic, particularly given the SNB’s current dovish stance and Switzerland’s deflation considerations.
In a risk-off setting, AUD/CAD shorts appeared promising given Australia’s current dovish RBA assembly minutes and weaker home information.
The “Loonie Lag” State of affairs:
If the BOC signaled elevated considerations about commerce impacts or hinted at potential price cuts, we thought this might weigh on CAD. We thought-about CAD/JPY for potential brief methods in a risk-off setting, significantly given the pair’s place close to key resistance ranges and the BOJ’s current dovish commentary about commerce uncertainties.
If danger sentiment stayed optimistic, GBP/CAD lengthy made sense given the Financial institution of England’s extra cautious strategy to price cuts.
What Really Occurred
The BOC stored charges regular at 2.75% as anticipated, however the assertion revealed a central financial institution grappling with important uncertainties.
Key factors from the choice:
- Commerce uncertainty stays elevated: Regardless of some moderation in US-China tensions, tariff charges stay nicely above early 2025 ranges, with ongoing threats of recent commerce actions
- Combined financial indicators: Canada’s Q1 GDP progress of two.2% barely exceeded forecasts, however was pushed by short-term components together with export pull-forward and stock accumulation
- Labor market weakening: Unemployment rose to six.9% in April, with job losses concentrated in trade-intensive sectors
- Inflation pressures combined: Headline CPI fell to 1.7% in April attributable to carbon tax elimination, however core measures firmed to 2.3%, barely above Financial institution expectations
Governor Macklem’s press convention revealed a governing council much less unified than in earlier conferences, noting “extra range of views” concerning future coverage course whereas emphasizing a data-dependent strategy.
Market Response
This final result basically triggered our CAD bearish situations, because the BOC’s cautious tone and acknowledgment of inner coverage debates steered a central financial institution transferring nearer to easing slightly than tightening. With danger sentiment leaning impartial to barely adverse across the occasion, CAD/JPY turned our focus.
Trying on the CAD/JPY chart, we noticed a direct bearish response after the BOC assertion, with the pair dropping from across the 105.25 stage because the central financial institution’s dovish undertones weighed on the Loonie. The pair discovered preliminary help close to the pivot level (104.646) however struggled to regain momentum by means of the rest of the North American session.
The bearish CAD narrative additionally rapidly shifted as broader market dynamics took over. Regardless of the BOC’s cautious stance, rising oil costs all through the week offered underlying help for the commodity-linked Canadian greenback. Extra importantly, persistent JPY weak spot pushed by the Financial institution of Japan’s dovish outlook on commerce uncertainties started to dominate the pair’s course.
By Friday’s shut, CAD/JPY had reversed its preliminary post-BOC losses and climbed towards the R1 resistance stage (105.775), supported by a 6.5% weekly acquire in crude oil costs and broad-based yen promoting that made the foreign money the worst performer amongst main currencies for the week.
The Verdict
So, how did all of it play out?
Our elementary evaluation appropriately anticipated potential CAD weak spot on the BOC’s cautious stance, which initially performed out as anticipated. Nonetheless, the technique dialogue was “unlikely” supportive of a web optimistic final result attributable to a number of components that turned obvious all through the week.
Whereas merchants who entered brief positions instantly after the BOC assertion may have captured some preliminary draw back motion, the execution window was extraordinarily slim. The neutral-to-mixed danger setting and comparatively dovish (however anticipated) BOC final result offered low conviction for sustained CAD weak spot.
Extra critically, broader market forces rapidly overwhelmed the CAD-specific fundamentals. The mix of rising oil costs supporting the commodity-linked Loonie and chronic JPY weak spot pushed by BOJ dovishness created an ideal storm for CAD/JPY upside that lasted by means of the week’s finish.
If merchants adopted the brief technique however did not exit rapidly after the preliminary transfer, they probably confronted mounting losses because the pair climbed again above the occasion value and continued increased.
The important thing lesson right here is that whereas our elementary evaluation was directionally appropriate initially, the low-conviction setup and conflicting cross-currents made this a difficult commerce to execute profitably over something past the speedy post-event response.
