FxWirePro: CAD relative value trades on Canadian price data announcement

Yesterday's Canadian price data, which surprised on the upside, showed how secondary the inflation trend is in the eyes of market participants at the moment. The boost for the Canadian dollar was strong at first but did not last long. 

The annual inflation rate in Canada rose to 1.9 percent in March 2019 from 1.5 percent in the previous month and matching market expectations. It is the highest inflation rate since December. The transportation index drove headline inflation up, as gasoline prices declined less in March than in February.

Canada’s merchandise trade deficit narrowed to CAD 2.90 billion in February 2019 from a downwardly revised CAD 3.09 billion in the previous month and compared with market expectations of a CAD 3.5 billion shortfalls.

CAD, too, is currently fully under the control of global economic concerns. And that is quite understandable. For no matter how well the Canadian economy may be doing at the moment, it is very unlikely that it will be able to escape a global recession. But if things don't get that bad, then we foresee a lot of upside potential in CAD.

Geopolitical effects: NAFTA bloc vols and risk-reversals can jump, if we are correct that a standoff between the Trump administration and the Democrat-controlled House around the issue of USMCA ratification is higher odds than the market gives it credit for.

Trade recommendations: The CAD risk premia section below flags that owning EURCAD and EURMXN risk-reversals are good value hedges against a NAFTA accident. 

We also continue to be positioned short CAD via a long-held CAD put/CHF call vs. USD put/CHF call option spread. 

Currency Strength Index: FxWirePro's hourly EUR spot index is showing -3 (which is neutral), while CAD is flashing at 62 (which is bullish), while articulating at (11:19 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex