Lehman Brothers and Commerzbank Securities are pitching trades based on a bullish view of the Canadian dollar. Eric Ohayon, head of foreign exchange structuring at Lehman in London, said investors are showing some signs of returning appetite for risk, which has historically been positive for the Canadian dollar as they look for higher yielding peripheral trades. The firms' views on volatility, however, diverge, as Lehman is expecting short-term volatility to fall and Commerzbank expects it to remain high.
Kamal Sharma, currency strategist at Commerzbank in London, is recommending a three-month U.S. dollar put/Canadian dollar call with a strike of CAD1.54 and a knock out at CAD1.60. This trade guards against expected short-term volatility in the currency. Sharma explained that although the firm is bullish on the Canadian dollar, it will also be susceptible to volatility if there are negative events, such as a sharp drop in the equity markets or increased fears of terrorist attacks on the U.S. Spot was trading at CAD1.5575 on Thursday when Commerzbank recommended the trade.
Lehman is recommending a bullish short-term trade based on the expectation that volatility will fall. Ohayon said the firm is pitching a one-month U.S. dollar put/Canadian dollar call with an at-the-money spot strike and knock outs at CAD1.51 and CAD1.5725. Ohayon said the market saw a large drop off in volatility during the past week in one-week vols to 6.9% from 8.75% and Lehman thinks that there is room for a further fall in the one-month portion of the curve.
