USD/CAD risk reversals: Investors brace up for hawkish BOC
|- The Bank of Canada (BOC) will likely sound hawkish.
- Investors seek downside protection - demand for CAD calls is on the rise.
The fading NAFTA uncertainty, rising oil prices and inflation and a strong labor market are enough reason for the Bank of Canada (BOC) to strengthen its hawkish bias. Also, a surprise 25 basis points rate hike cannot be ruled out as well.
No wonder, the CAD calls (buy CAD) are in demand. The USD/CAD weekly 25 delta risk reversals (CADSWRR) are being paid at 0.45 CAD calls vs. 0.38 CAD calls yesterday. The rise in the implied volatility premium for CAD calls clearly indicates the investors are seeking downside protection in USD/CAD.
Note, the implied volatility premium for CAD puts currently stands at the highest level since early February.
CADSWRR
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