CAD against the dollar is up about 0.2%, a relative underperformer against its G10 peers in an environment of broad-based USD weakness. CAD has retested Tuesday’s two-month high and risk appears balanced to the upside.

 Thursday’s domestic risk is limited to the release of second-tier international securities transactions data for June, leaving the focus squarely centered on the broader USD and its response to the shifting Fed narrative.

CAD remains well supported by both its drivers as WTI crude regains fresh highs above $48.23/bbl while the 2Y U.S.-Canada spread narrows in response to the softening in Fed expectations following Wednesday’s minutes release.

However, measures of implied CAD volatility are showing signs of a broader turn and risk reversals hint to an exhaustion of the post-Brexit moderation in the premium for protection against downside risk.

DXY hits fresh lows; FOMC in no collective rush. USD gives back more than 2/3 of the rally since June 23 UK referendum.

CAD rises modestly, retests Tuesday’s two-month high; and likely to prolong gains as the risk in dollar sentiment lingers.

We recommend hedging for American foreign businessmen who have USD-denominated expenses out to 3 months via FX forwards and USD expenses receivable on 3M-12M horizons via knock-in forwards with window barriers.

We recommend capitalizing on the slowdown in the USD’s decline to increase hedging via FX forwards. Alternatively, consider hedging via a boosted risk reversal strategy.