USD/CAD rallies further beyond mid-137.00s, fresh 24-year high and counting

• USD/JPY caught aggressive bids on Monday and rallied to a fresh 24-year high.
• The Fed-BoJ policy divergence weighed on the JPY and remained supportive.
• Technical buying above the 137.00 mark contributed to the strong move up.

The USD/JPY pair added to its strong intraday gains and rallied further beyond the mid-137.00s, to a fresh 24-year high during the early North American session. The pair was last seen trading around the 137.65 region, up over 1.15% for the day.

A strong showing by Japan’s ruling coalition in Sunday’s upper house election reinforced bets that the Bank of Japan would stick to its ultra-loose monetary policy stance. Adding to this, BoJ Governor Haruhiko Kuroda said on Monday that the central bank won’t hesitate to take additional monetary easing steps as necessary. This, in turn, weighed heavily on the Japanese yen, which, along with aggressive US dollar buying provided a goodish lift to the USD/JPY pair on the first day of a new week.

In fact, the USD Index surged to a fresh two-decade high amid growing acceptance that the Fed would retain a faster policy tightening path to curb soaring inflation. The June FOMC meeting minutes emphasized the need to fight inflation even if it results in an economic slowdown and indicated that another 50 or 75 bps rate hike is likely at the July meeting. Furthermore, Friday's upbeat US jobs report reaffirmed bets for more aggressive Fed rate hikes and continued underpinning the USD.

The USD/JPY pair's strong positive move on Monday could further be attributed to some technical buying on a sustained move beyond the previous YTD peak, around the 137.00 mark. The subsequent strength reaffirms a fresh bullish breakout and supports prospects for additional gains. That said, the prevalent risk-off environment could offer some support to the safe-haven JPY. This, along with extremely overbought conditions on hourly charts, could cap gains, at least for the time being.

Nevertheless, the divergent BoJ-Fed policy outlooks should continue to weigh on the JPY and supports prospects for a further appreciating move for the USD/JPY pair. The market focus now shifts to this week's release of the latest US consumer inflation figures, due on Wednesday. Apart from this, the US monthly Retail Sales data and Prelim Michigan Consumer Sentiment on Friday will influence the USD price dynamics. This, in turn, should provide a fresh impetus to the major.

Technical levels to watch