Oil Shock Fuels CAD/JPY Rally Amidst Global Bond Yield Surge

Oil prices have broken above $90, sending shockwaves through the markets and boosting the Canadian Dollar (CAD) against the Japanese Yen (JPY). This dual stimulus has created a rare setup for CAD/JPY, with stronger Canadian terms of trade and greater funding pressure on the Yen.

The break above $90 is also pushing global bond yields higher, which is having a stagflationary effect. The US 30-year yield has reached its highest level in 19 years, while Germany's 10-year Bund has touched a multi-year high. This has exacerbated the Yen's carry-funding role and increased the pressure on the BoJ to normalize rates.

Canada's own data are now contributing to the rally, with a strong jobs beat, firmer May GDP, and CPI reopening the BoC hike discussion. The Canadian Dollar is gaining independent support, making this rally different from June's Yen-only driven advance.

The key resistance for CAD/JPY lies at 117.50, which would open up the path to 120 and then 120.86. However, the main risks come from Japan, with USD/JPY nearing the intervention-sensitive zone and the September 18 BoJ meeting approaching.