Canadian GDP data for Q2 is due for publication today and it is worth taking a look at it. Only recently the Bank of Canada (BoC) lowered its growth outlook for the year. It now expects the economy to have shrunk by an annualised 1% QoQ in Q2. Above all the fall is due to the wildfires in the oil-producing province of Alberta.

However, global headwinds have also increased recently. The analysts polled by Bloomberg are even more pessimistic and expect a fall of 1.5%. And indeed, the weak growth of the US economy, in particular, is likely to have weighed on the Canadian economy via foreign trade. However, in our view, this is no reason to now take a more pessimistic view on CAD.

The Canadian economy is likely to develop much better in the second half of the year as the government’s economic measures, as well as, reconstruction work in Alberta, are likely to be supporting the economy then. The BoC is also likely to rely on that therefore not signalling any further easing of monetary policy.

Canada's merchandise trade deficit came in at CAD 3.63 billion in June 2016 compared to a revised CAD 3.50 billion gap in the previous month, missing market consensus.

FX Option Strategy:

USDCAD expands higher to 1.3112 during an early European session, the pair’s highest since August 11; the pair subsequently consolidated at 1.3062, gaining 0.38%, however, it could not sustain at that level to drop back at current 1.3097 levels.

Please be noted that the 1m IV is gradually rising and positive IV skews on OTM call strikes, while positive risk reversals signify the hedging sentiment is lingering in OTC for upside risks of this pair.

Hence, we recommend initiating more long call positions so as to hedge upside risks in this pair, call ratio back spread may probably attain the ideal hedging objective by reducing the hedging cost as well.

1M ATM +0.51 delta call, 1 lot of (1%) OTM +0.36 delta call and simultaneously short 1 lot of deep OTM call (2%) with comparatively shorter expiry in the ratio of 2:1.