CAD/JPY surges on strong Canadian jobs data, Bank of Canada hike speculation

• CAD/JPY rises 0.72% to 108.38 after Canadian jobs report beats expectations, adding 15K jobs and pushing the unemployment rate to 5.5%.
• Odds for a Bank of Canada rate hike by year-end jump to 44% from 36%, following a 5.2% wage increase in August.
• Japanese Q2 GDP growth falls short of estimates at 4.8% YoY but fails to bolster the Yen as Canadian data takes center stage.

The Loonie (CAD) posts solid gains versus the Japanese Yen (JPY) on Friday after an upbeat Canadian jobs report sparked speculations the Bank of Canada would increase rates at a subsequent meeting. That and investors’ risk appetite weighed on the Yen’s safe-haven status. At the time of writing, the CAD/JPY exchanges hands at 108.38, up 0.72% or +77 pips.

Loonie gains ground against the Yen as upbeat employment figures fuel rate hike expectations, overshadowing Japan’s sluggish GDP growth

Statistics Canada revealed that the Canadian economy created more jobs than foreseen at 15K in August, with 39.9K people adding to the workforce, while the unemployment rate stood at 5.5%. The labor market has remained resilient, even though the Bank of Canada (BoC) has lifted rates ten times since March 2022.

Digging deeper into the data, a measure of wages rose by 5.2% in August from 5% in July, increasing the chances the BoC would step in and lift rates. Of note, the BoC kept rates unchanged on September 6 at 5%, but after the data release, the money market futures show odds at 44% chance of another BoC rate hike by the year’s end, from 36% before the employment report crossed the screens.

The data comes one day after the BoC Governor Tiff Macklem said that interest rates may not be high enough to bring supply and demand in balance, bringing inflation down. The BoC’s decision to hold rates unchanged was attributed to Q2’s 2023 unexpectedly contracted -0.2%, signaling the economy could’ve entered a recession.

Aside from this, data from Japan witnessed the economy growing slower than expected, with Q2’s GDP at 4.8% YoY, below the 5.5% estimated. Although it was negative, a risk-off impulse benefitted the Yen during the Asian and European sessions. Nevertheless, as Japanese authorities remained mute about a possible Forex intervention, it was outpaced by Canadian data.

Therefore, further CAD/JPY upside is expected, though caution is warranted on intervention threats and overextended price action.

CAD/JPY Price Analysis: Technical outlook

From a technical perspective, the CAD/JPY is neutral to upward bias, remaining above the Ichimoku cloud (Kumo) but failing to reach the year-to-date (YTD) high at 109.50. A decisive break would expose the 110.00 psychological level before testing last year’s high of 110.52. Failure at 109.50 and sellers would outweigh buyers and drag prices toward the Tenkan-Sen line at 107.61 before extending its losses to the Senkou-Span A at 107.39. Break below, and the pair would dive towards the Kijun-Sen at 107.18.