BOC vs BOJ: Historic Rate Hike Sets Stage for USD/CAD Showdown

The Bank of Canada's decision to hold interest rates steady at 2.25% has put it at odds with the Bank of Japan, which is widely expected to hike its policy rate to 1.25% on Friday. This historic move will pit the yen against the Canadian dollar, with the CAD/JPY pair trading below a key support zone.

The Bank of Canada's decision was seen as mildly hawkish, with policymakers acknowledging a broadening economic recovery and rising inflation risks. Meanwhile, the Bank of Japan's rate hike is expected to be its highest level since April 1995. The yen has already surged to seven-month highs in anticipation of the move.

The CAD/JPY pair has broken below its long-term ascending trendline from last November's lows, with price trading well below the 100-period EMA at 114.02. A break below the 110.50-111.00 support zone could bring the descending trendline from May's highs into play as a possible support level.

The outcome of Friday's BOJ decision will be crucial in determining the next move for CAD/JPY, with a yen rally potentially pushing the pair to fresh multi-month lows.