The upcoming Bank of Canada interest rate decision may underpin CAD against its major counterparts in the near-term, as Canadian policymakers are expected to retain their wait-and-see approach to monetary policy in light of recent economic data that shows the local economy is recovering faster than expected.
Markit manufacturing PMI figures for August pointed to the largest expansion in factory activity since August 2018, and second quarter GDP shrank less than the expected 39.6% plunge.
However, with the unemployment rate still hovering above 10% and an annual inflation rate of 0.1%, the BoC is likely to confirm its commitment to “hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved” and could flag future adjustments to its policy framework.
RSI has yet to snap below its uptrend extending from the March extremes and the MACD indicator continues to track firmly above its neutral midpoint, which suggests that selling pressure may begin to fade in the coming days.
If support at the July 22 close (79.83) and sentiment-defining 200-DMA (79.75) remains intact, a resumption of the primary uptrend could be in the offing.
A daily close above the 21-DMA (80.60) probably opens a path for CAD/JPY to retest the January low (82.13), with a break above potentially resulting in price fulfilling the implied measured move (84.10) of the Descending Triangle carved out from early-June to mid-August.
Conversely, a break below the 200-DMA could ignite a more substantial correction and possibly lead price back towards support at the 50% Fibonacci (77.87).
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