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Macro and Vol Commentary

USDCAD has trended lower since March 2020, but in recent weeks the currency has consolidated. Where do we go next?

Economic Data

  • Canada has administered 1.17m doses of the vaccine which is 2.5% of the population, and daily COVID-19 cases are at 2,204 as of February 15th
  • This will help improve investor sentiment for CAD, but the vaccine rollout is relatively slow compared to other countries.
  • High-frequency economic data supplied by Bloomberg suggests that the economic mood is improving as job postings increase.
  • Q1 2021 GDP is expected to decline by -1% q/q
  • GDP for 2020 was -4.4% y/y, and we expect this to increase by 5.2% y/y in 2021 according to IMF
  • We expect economic growth to accelerate in Q2 and Q3 before moderating slightly in Q4.
  • Manufacturing in Canada stands at 54.4 for January, lower than the previous reading of 57.9, but both are expansionary.
  • Manufacturing firms increased their purchasing activity with input buying improving. Border restrictions and congestions at ports are leading to longer delivery times.
  • Cost inflation is starting to take hold, and output charges increased.
  • Unemployment was 9.4% in January above the economic survey of 8.9%. The net change in employment stands at -212,800; this decline came from a drop in part-time jobs by 225,400. Full-time jobs increased by 12,600 in January 2021
  • The participation rate declined in January at 64.7%
  • The hourly wage rate of permanent workers was 5.9% in January, above the previous month at 5.4%
  • The economy is in better shape than employment data suggests, but the loss in employment was in the part-time space, and we expect this to return to growth in the coming months.
  • The hourly wage has been healthy, and this should support consumer demand as the vaccine is rolled out, and restrictions are eased. However, it remains to be seen if the easing of restrictions now while the new variants are spreading is detrimental to the economy.
  • Retail sales increased by 1.3% in November, which is the most up to date data.
  • Ex-autos retail sales were 2.1% for the same period.
  • CPI y/y was 0.7% in December with CPI core – median was 1.8% y/y. Inflation is expected to rise due to higher commodity prices.

Oil Market

  • Oil prices have rallied consistently due to the OPEC+ cuts; the most recent cuts have lifted prices above $60/bl. OPEC oil production was 25,670 in January, up from December's level at 25,480.
  • The US's cold weather could prompt demand for oil and gas to surge, and with cold weather expected to continue energy consumption will remain strong.
  • Electricity blackouts are expected as power demand reaches a record high.
  • There is also likely outages for oil rigs in West Texas this week; the March/April spread has tightened to 80cnts/bl backwardation.
  • The Baker Hughes rig count in the US was 397 as of February 12th, and the rig count has been increasing gradually in the last few months.
  • The Canadian rig count has increased to 176 as of February 12th, this is a break down of 101 rigs for oil and the remaining natural gas.
  • Oil demand has improved in recent weeks due to the cold weather, but according to the IEA World, oil consumption pushed higher on September 30th 2020 to 92.97m barrels per day.
  • The improvement in prices needs to be sustained to improve the prospects of investment in the medium term. According to Deloitte, previous estimates suggest that investment will fall 3.9% in 2021, following a 20% decline in 2020.

Central Bank & Government Stimulus

  • The bank kept its overnight rate at 0.25%, the bank rate at 0.5%, and the deposit rate at 0.25%
  • They maintained their QE program at $4bn per week.
  • The bank's balance sheet increased from$105bn in February 2020 to $360bn in November 2020
  • Bond purchases are likely to be adjusted in Q2 as the recovery strengthens, this could see bond yields start to rally, but we continue to watch their wording closely for any indication of a course change.
  • The government are expected to continue their expenditure with a budget of $100bn.
  • The deficit last year was $400bn, the government will be able to maintain this higher debt level as rates are low and their strong fiscal position.

The stimulus plan will aid in recovery and support employment. The labour market is not as bad as recent data suggests and as the restrictions ease, part-time work will return. We remain wary of the government re-opening the economy too soon, and the new variants spreading quickly would be detrimental to the economy. Oil prices are rallying, and we expect this trend to continue with strong demand in the US due to cold weather and the OPEC+ production cuts. Investors are looking towards synchronised economic growth, in Q2 and the vaccine for risk appetite and the slow vaccine administration in Canada could provide headwinds to the market. We expect relations with the US to improve, which will help the economy in the longer run. We favour holding a short USDCAD position with 1.25 the near term psychological level before 1.2446.

Volatility Commentary

Over the last few months, we’ve seen USDCAD implied vols generally come off post US election though volatility has been realising higher and slightly ticked over implied. As mentioned above Canada’s vaccination rate is on the lower side we see the potential for volatility to realise inline with implied in the short term, though over the longer term we’d expect these to continue lower once vaccination issues in Canada are ironed out (we note on the US side vaccination rates are have been much higher so far and expect vaccination roll out on the US side to continue relatively smoothly). As mentioned above with gradually increasing oil and demand and prices we see the potential for USDCAD to head lower on CAD strength as an oil exporter.

USDCAD 1-month Implied and Realised Volatility

EURGBP Trade Idea

  • Buy 3-month EKI Put in 10m USD Notional with Strike 1.2600 and EKI 1.2440 for circa 80k USD (for reference vanilla equivalent is circa 90k USD)
  • Sell 3-month Call spread in 7.5m USD Notional a leg with Strikes 1.2800 & 1.2900 for circa 19k USD
  • Overall premium circa 61k USD upfront premium cost

Positioning Charts

USDBRL NDO Positioning Data 02/02/2021 - 09/02/2021

There were significantly fewer option trades in the week to February 16th than there was to February 9th. There were more put options traded with a range of 5.10-5.40, expiries for these options are between now and March 5th. There is very little upside coverage above 5.50, and options executed have a low notional value. There has been a greater emphasis on the downside for some weeks now, but the limited options executed this week show that we could see spot consolidate in the coming week. 

USDBRL NDO Positioning Data 09/02/2021 - 16/02/2021

USDCNY Vanilla Positioning Data 02/02/2021 - 09/02/2021

This week the options market remained concentrated around the spot, there continues to be a modest downside bias for USDCNY, with more cover below 6.30 this week than the week to February 16th. There is also less cover above 6.70 in the near term and this suggests that the market is adjusting to the spot market. There are more options executed below 6.30 in May, these options have a larger notional value as well. The dollar has trended lower and CNY has strengthened and we expect this trend to continue. 

USDCNY Vanilla Positioning Data 09/02/2021 - 16/02/2021

USDCAD Vanilla Positioning Data 16/12/2020 - 16/01/2021

In the month to January 16th, there was coverage above 1.35, and call options executed were fewer than the superseding month. Up to February 16th, options executed trade a similar range but there are more calls. However, some expire in April and May so are not impacting the market this week. There are more options executed below 1.25 and the long term trend is on the downside but a breakthrough 1.2450 could see further losses as traders follow the market lower. We expect spot to drift to 1.25. 

USDCAD Vanilla Positioning Data  16/01/2021 - 16/02/2021

Charts and Tables

FX Expiries

Volatility Grid


Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)


Weekly Change


Key Events & Releases

Technical Charts

JP Morgan Global FX Volatility Index

JP Morgan has recovered in recent sessions after the sell-off for most of 2021. The index found support around 7.14, and is now trading higher. The stochastics are sending the sell signal, as %K/%D converged on the downside and the MACD diff is positive but has started to converge suggesting we could see a correction to the downside in the near term. The index broke above the 50 DMA resistance at 7.25 but has rejected 7.33 and if prices retreat back to the current support and break below this level we may see a break of the recent upward trend. On the upside, to confirm the continuation descending triangle prices need to break 7.14 and then target the 7.00 level in the long term. 

Dollar Index

The index has improved in the last couple of sessions and has breached resistance at 9.80 and now stands at 9.85. The stochastics are rising and are in overbought as the MACD diff is positive and diverging suggesting we could see the index push higher in the near term. The index needs to hold above 50 DMA at 90.90 in the near term before targeting 91.00. If the 50 and 100 DMAs support hold, we could see the market push higher. The shorter term 50 DMA crossed above the 100 DMA one, confirming the outlook for higher prices. On the downside, rejection above 9.60 could trigger a break of trend support and moving averages helping to confirm the double bottom around 90.30.


The pair recovered in recent sessions, testing the 50 DMA at 1.27, however, failed to break above the level. The stochastics are rising, with %K entering the overbought territory, and the MACD diff is diverging on the upside, suggesting growing buying pressure. The long upper wicks with rejection at 50 DMA could pave the way for a correction in the near term back towards 1.2610. On the upside, if the index can break above current resistance, this could trigger further gains on the upside which would help to target 100 and 200 DMAs. 



This is a marketing communication. The information in this report is provided solely for informational purposes and should not be regarded as a recommendation to buy, sell or otherwise deal in any particular investment. Please be aware that, where any views have been expressed in this report, the author of this report may have had many, varied views over the past 12 months, including contrary views.

A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience.

Please contact the author should you require a copy of any previous reports for comparative purposes. Furthermore, the information in this report has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Data in this report has been sourced from Bloomberg unless otherwise stated. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy.

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