One-month implied volatility for U.S. dollar/Canadian dollar options rose about 50 basis points after an Asian investor bought dollars early in the week in Singapore. Options trading increased on the back of the dollar weakening to CAD1.60 from CAD1.680 in Singapore trading, according to a foreign exchange options trader in New York.
"We're not sure what was going on and no one else was either. Singapore is not the main Canadian market. People were just trading options on the back of the Singapore spot market trade," the trader added. By Wednesday one-month implied vol was at 6.8% up from 6.3% the prior week.
A common trade for proprietary-trading desks was to buy one-week U.S. dollar out-of-the-money calls struck at CAD1.625. Dollar/Canadian was at CAD1.6075 Wednesday up from CAD1.592 a week earlier.
Andrew Chaveriat, v.p. foreign exchange at BNP Paribas in New York, predicted the Canadian dollar would continue to weaken, while the U.S. dollar mounts a strengthening trend over the coming months. He said that the U.S. is moving more quickly out of recession than previously expected and Canada, which is also in a recession, traditionally moves slower than the U.S. when emerging from an economic slump.
USD/CAD Spot & One-Month Implied Volatility
Source: JPMorgan
