By Ketki Saxena
Investing.com -- The Canadian dollar strengthened against its US counterpart today, as the greenback weakened broadly against major currencies, following a surprise move by the bank of Japan to adjust its bond yield controls.
The move sent the USD/JPY pair tumbling as investors sold the buck for the yen, as Japanese government bond yields to their highest in seven years - effectively doubling long-term borrowing costs.
The Canadian dollar, though pressured by the broader risk sentiment, was supported by gains in crude prices.
The USD’s spectacular bull run may finally be over, as other central banks including the Bank of Canada, Bank of England, the European Central Bank, and the Reserve Bank of Australia have hiked rates and remain hawkish, minimizing the benefit of the yield differentials between US treasuries and other government bonds, mitigating much of the fundamental support for the dollar’s rally this year.
The BOJ shocked markets today with a surprising tweak to its bond yield control - which it maintains is not a form of monetary tightening, but rather a technical measure, in a move aimed at easing some of the costs of prolonged monetary stimulus. The move will allow long-term interest rates to rise further, and sent the yen soaring and Japanese bond yields rose to a seven-year high.
Societe Generale (EPA:SOGN)'s head of FX strategy Kit Juckes is one of the strategists who believe the dollar’s bull run is over. "However we dress up the world, the Fed is crawling towards the end of its rate-hiking cycle. The rate hikes are going to get smaller and smaller and eventually, there will be nothing and that will be the end of that story.”
Against broad-based US dollar weakness, the Canadian dollar manage to gain against the greenback even as risk sentiment remained sour on worries of central bank hawkishness. However, the commodity linked loonie gained some support from oil prices on a softer U.S. dollar and plans by the Biden administration to refill the US’s petroleum reserve. Gains remained capped by uncertainty over China’s demand outlook as COVID-19 cases rise shortly after the partial repeal of stringent lockdowns.
On a technical level, analysts at Scotiabank (TSX:BNS) note that “Technically, after repeated failures around 1.37, the USD edging below 1.3620 (the low point of the past week’s range and a double/triple top trigger) today should have produced more downside pressure on USD/CAD. That may still develop but the market seems reluctant to bring negative pressure to bear on the USD.”
“A clear push under 1.3620 should see USD/CAD dip to the 1.3540 zone in the next few days.”
Due to the move into JPY today, here's a note of commentary on the CAD/JPY pair from analysts at Talk Markets
RE: CAD/JPU: "Price broke from the symmetrical triangle in early-November, and then quickly breached the trendline, which led to a run down to the 100 psychological level, which held the lows for the past couple of weeks until last night’s breakdown.
At this point, the pair is very stretched and finding support at a Fibonacci level plotted at 96.55. Prior support now becomes resistance potential, and this is plotted around the 99.49-100.00 area of prior support. This market is still weak: The complication is timing as it’s already printed a really large move."