- The BoC may raise the interest rate to 0.50% (+25 basis points) by Q4 2022 due to future growth projections of Canadian businesses.
- Consensus estimates have put Canada’s employment change at +195,000.
- Japan’s economic growth is tied to the vaccine rollout, which stands at 15.2%
The CADJPY pair gained 0.36% as of 3:42 am GMT on July 9, 2021, from the previous day’s close. It hit a low of 87.45 before rising to a high of 87.88.
Investors were optimistic about the Canadian dollar (CAD) ahead of the release of the employment change data report on July 9, 2021. Due to the imposition of the Covid-19 third wave restrictions in Canada, employment declined 0.4% to 68,000 in May 2021.
The previous month (April) had seen employment reduce by an additional 207,000 (-8.2%). Consensus estimates have put the employment change at 195,000.
Canada’s business sentiment
The Bank of Canada (BoC) maintained the policy interest rate at 0.25% in June 2021, with the total CPI (inflation rate) at 3.6%. This policy rate was lowered from 0.75% in March 2020. An increase in this rate will be dependent on business recovery due to increased vaccination across Canada.
In its business outlook survey, the BoC indicated that the business sentiment index would register an increase of 4.17 in Q2 2021.
Canada’s Business Sentiment (from 2006-Q2 2021)
As of Q4 2020, the business outlook index stood at 1.35 before rising to 2.95 in Q1 2021. It had fallen to a low of -6.85 in Q2 2020. Approximately 40 firms surveyed in the survey stated that their current sales (in Q2 2021) were yet to reach pre-pandemic levels. Most of the companies were tied to tourism and hospitality segments that were adversely affected by shutdowns and travel restrictions.
However, optimism continues to reign among Canadian investors with demand and retail consumption expected to improve in the next 12 months (to Q2 2022).
In its July 14, 2021 meeting, the Bank of Canada is expected to taper or lower its asset purchase program. Weekly asset purchases may be reduced by C$1 billion to C$2 billion to increase the policy rate. Economists estimate that the BoC will raise the interest rate to 0.50% (+25 basis points) by Q4 2022. The BoC’s decision will be guided by future growth projections of Canadian businesses. Canada’s average export estimates are expected to surge 6.2% in 2021.
Japan stimulus
A Bloomberg survey hinted that the Japanese government is likely to unveil a $180 billion stimulus package before the end of 2021. In the medium range, the government is likely to unveil a package of 20 trillion yen – 30 trillion yen.
Japan’s stimulus package outline
The Bank of Japan (BoJ) intends to purchase government bonds worth 7.5 trillion yen to finance an additional budget of 10 trillion yen to 15 trillion yen.
A forecast by Japan’s Cabinet Office intimated that the economy would grow by 3.7% in 2021. The GDP will be expected to increase from 545.3 trillion yen to 546.0 trillion yen. This growth projection fell short of the target set in Q1 2021 at 4%. However, economic recovery will be tied to vaccine rollout that now stands at 15.2%.
Technical analysis
The CADJPY pair hit the resistance price of 91.300 on June 3, 2021, before prices tumbled but did not reach support at 85.424.
The 14-day RSI has entered the oversold region at 28.97. The price also lies below the 9-day EMA at 88.884, showing a potential downtrend.
