CAD/JPY: Sell the fact - ANZ

Analysts at ANZ expect a ‘dovish hike’ from BoC today and thus now recommend selling the CAD/JPY at 88.14 ahead of the BoC meeting today. We are targeting 85.60 and will reassess the trade at 89.20, they further add.  

Key Quotes

“The CAD has risen precipitously over the past couple weeks with the BoC positioning the market for an unwind of “exceptionally low” rates.”

“We expect BoC to hike the policy rate in July, however we are less confident they will explicitly signal another hike by the end of this year, given the inflation outlook. This implies the market may have gone too far and some reversal of recent gains is warranted. Thus we are looking to ‘sell the fact’ and get tactically short the CAD.”

“On this front the JPY is looking attractive. The recent move higher in USD/JPY, in line with US long bonds is looking relatively stretched and could be due for consolidation. Any disappointment on the inflation front in the US would likely drive a sharp reaction in the JPY.”

“Further, the JPY is likely to become increasingly sensitive to market volatility as global liquidity starts to contract. On this front, recent announcements from the US Federal Reserve, which suggest that balance sheet reduction will take place in parallel and somewhat separate to economic considerations have given us more confidence that we are nearing a structural bottom for market volatility and thus a peak for the JPY.”

“Putting this all together, with the technical picture for CAD/JPY, we recommend selling the cross as 88.14, with a profit target of 85.60. We will reassess the trade at 89.20.”