Canadian Dollar Forecast: BoC Tapering Bets To Buoy CAD Against JPY, USD, EUR

Canadian Dollar, USD/CAD, CAD/JPY, EUR/CAD, Bank of Canada – Talking Points:

  • Equity markets traded mixed during APAC trade as Treasury yields hovered at yearly highs.
  • Robust economic data may intensify Bank of Canada tapering bets and open the door for CAD to continue gaining ground against EURUSD and JPY.

person holding two 20 Canadian dollar banknotes

Asia-Pacific Recap

Equity markets traded mixed during Asia-Pacific trade, as long-term Treasury yields held steady at the highest levels since February 2020 ahead of the upcoming FOMC monetary policy meeting. Australia’s ASX 200 nudged 0.09% higher and the Nikkei 225 climbed 0.17%, while Hong Kong’s Hang Seng Index drifted 0.19% lower.

China’s CSI 300 plunged 2.73% on mixed economic data and policy tightening concerns. In FX markets, the cyclically-sensitive New Zealand Dollar and Canadian Dollar climbed higher alongside the haven-associated US Dollar and Swiss FrancGold drifted lower, while silver traded unchanged, as yields on US 10-year Treasuries climbed 1-basis point higher (UUP, FXF, GLD,SLV, SPTL).

Looking ahead, US net capital flow and foreign bond investment figures for January headline a rather light economic docket.

Canadian Dollar Forecast: BoC Tapering Bets to Buoy CAD Against JPY, USD, EUR

Bank of Canada Tapering Bets to Underpin CAD

The Canadian Dollar (FXC) surged higher against the lower-beta US Dollar, Japanese Yen (FXY) and Euro (FXE) at the tail-end of last week, as market participants begin to bet on the Bank of Canada tapering its Quantitative Easing measures at its monetary policy meeting in April, in response to extremely strong jobs data.

The nation’s unemployment rate fell 1.2% to 8.2% in February, drastically exceeding consensus estimates, while the participation rate held firm at 64.7%. This overwhelming drop in joblessness comes in spite of the majority of the country still operating under the tightest restrictions seen since the inception of the pandemic, according to the Oxford COVID-19 Government Response Tracker.

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