BOJ’s Noguchi Calls for Cautious, Gradual Interest Rate Hikes to Sustain Inflation Goals 
Kazakhstan Central Bank Holds Interest Rate at 18% as Inflation Pressures Persist 
RBA Reassesses Pricing Behaviors and Policy Impact Amid Inflation Pressures 
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data 
S&P 500 Relies on Tech for Growth in Q4 2024, Says Barclays 
Lithium Market Poised for Recovery Amid Supply Cuts and Rising Demand 
RBI Cuts Repo Rate to 5.25% as Inflation Cools and Growth Outlook Strengthens 
US Futures Rise as Investors Eye Earnings, Inflation Data, and Wildfire Impacts 
Trump’s "Shock and Awe" Agenda: Executive Orders from Day One 
BOK Expected to Hold Rates at 2.50% as Housing and Currency Pressures Persist 
New RBNZ Governor Anna Breman Aims to Restore Stability After Tumultuous Years 
Oil Prices Dip Slightly Amid Focus on Russian Sanctions and U.S. Inflation Data 
China’s Growth Faces Structural Challenges Amid Doubts Over Data 
Brazil Central Bank Plans $2 Billion Dollar Auctions to Support FX Liquidity 
Before we jump into the core area of this post, let’s just glance through some fundamental driving forces. The oil performance has been instrumental in boosting the Canadian currency so far in conjunction with the BoC’s rate hiking speculations.
Even though the long-term picture suggests that the currency has overshot the rebound in oil prices. However, the CAD is on the right track to remain strong: the interest rates factor is taking over from the commodity factor. CAD rates recently climbed above USD rates for the first time since 2014, and our USD rates projections can realistically drag the USDCAD to 1.35. Since February 20115, the pair has been oscillating between 1.4689 on north and 1.2037 on the south.
In this write-up, we emphasize to take advantage of high carry-to-vol, with the Fed in a slower gear than the markets expected here we widen the net by employing no-touch structures as a passive play on limited upside in high beta FX. No-touches can be seen as defined downside alternatives to selling naked vanilla high beta & EM puts and are well suited to take advantage of the modestly risk-positive environment that should emerge after the trade dust settles.
As shown in the above nutshell, one can configure calendar options structures that come in costless, buying front tenor no-touch (NT) and selling back tenor NT with the same barrier and notional adjusted to assure zero loss in event of the barrier getting triggered.
At the current market, the strategy collects solid static returns in case of USDCAD (+1M/-2M 23% of the 2M leg notional of static return –i.e. if spot stays unchanged after 1M –at expiry of the long no-touch leg).
With CAD at the moment out of the trade crosshairs, consider the following as a low-cost slow Fed play: Long 1M vs. short 2M USDCAD call no-touch calendar @1.3150, in 0.8:1.0 ratio notionals, spot ref 1.2929 costs 4.8% USD.
FxWirePro launches Absolute Return Managed Program. For more details, visit:
