Scotiabank strategists Shaun Osborne and Eric Theoret report that the Japanese Yen (JPY) has gained strength against the US Dollar (USD) following Japan’s July Consumer Price Index (CPI) increase to 1.9% year-on-year, which was in line with expectations and continued the steady price rise seen since February [1]. Additionally, preliminary August Purchasing Managers' Index (PMI) data for Japan exceeded expectations, indicating robust momentum in both services and manufacturing sectors [1]. These data points have reinforced market expectations for Bank of Japan (BoJ) tightening, with approximately 20 basis points of rate hikes now priced into swaps [1]. As a result, the JPY appreciated by 0.4% against the USD on the day, leading to a modest decline in the USD/JPY pair [1]. Technically, Scotiabank describes the USD/JPY setup as neutral to bearish, suggesting that losses below the 158.25 level could open further downside for the USD [1].
Meanwhile, the Canadian Dollar (CAD) has also shown strength against the USD, supported by broader dollar weakness, increased demand for high-beta currencies, narrowing front-end spreads, and diminishing uncertainty around US-Canada trade relations [2]. The CAD has outperformed core European currencies but lagged behind the Australian and New Zealand dollars during the session [2]. Scotiabank notes that the CAD is up 1% on the week, maintaining a bearish technical outlook for the USD/CAD pair [2]. Sustained weakness below the retracement support at 1.3817, along with bearish technical indicators, points to a potential deeper retracement of the USD’s May-June rally, with a move toward the 1.35 handle possible [2]. Spot is approaching key medium-term support at 1.3715/30, and a break below this level could target the 1.35 area, while resistance is noted at 1.3795/00 [2].
Market sentiment in both cases is influenced by expectations of central bank policy shifts and technical factors. For the JPY, the prospect of BoJ tightening has provided support, while for the CAD, a combination of fundamental and technical factors underpins its recent gains [1][2].
CONCLUSION
Both the Japanese Yen and Canadian Dollar have strengthened against the US Dollar, driven by supportive domestic data and shifting central bank expectations. Technical and fundamental factors suggest further potential upside for both currencies if current trends persist. Market participants are closely watching key support and resistance levels for confirmation of continued moves.