The next upcoming catchy economic event in this week would be from Fed's monetary policy, which has begun its two-day meeting from today. Major currency crosses are expected to tread familiar ranges as investors await fresh clues on the outlook for U.S. monetary policy.

While, BoC has left overnight bank rates unchanged at 0.50% in its last week's monetary policy.

FX OTC outlook:

Since, 3M USDCAD implied volatility has to decline and 1W IVs sceptically rising in a slightly bullish environment in an intermediate term, we recommend a short vega strategy.

Risk reversals have been neutral to slightly bullish bias.

Why to hedge USDCAD spot FX risks:

USDCAD began sensing pressures for downside risks in long run.

Although the Fed will likely to remain on the sidelines in tomorrow's monetary policy, the improving domestic backdrop supports our view that the Fed will continue on with its gradual tightening cycle in June.

On Monday, an increasingly important gauge of U.S. inflation rebounded last month from record low levels, adding to other firming price measures that could help pave the way for future Fed interest rate hikes.

Analysts point to a much calmer global situation than in January, when the Fed noted the U.S economic slowdown, the decline in inflation, and external factors including China and oil prices.

We think current macro situations lead the fed to almost defer policy actions to June meeting, but manipulative statements on monetary policy outcome may keep USDJPY at stake.

Hedging Framework:

So, Buy USD/CAD 2m put ladder strikes (1% ITM: ATM: 1% OTM)

Spread ratio: 1:2

So, go long in 2M (1%) ITM +0.65 delta put and simultaneously short in 2 lots of puts (i.e. 1 ATM and (1%) OTM put) with shorter expiries (per say 1W expiries) and positive theta values.

Rationale: Since 1W implied volatility is inching higher and likely to shrink away again when risk reversals are neutral comparatively to 1-3M expiries which is good for option writers in next 1 week.

Thereby, short premiums finances the long positions, capitalize on upswings  and hedges the downside risks in spot FX with reduced or no hedging cost.