USD/CAD risk reversals retrace bullish bias as pair hit 3-week low
- USD/CAD risk reversal show drop in demand for CAD bearish bets.
- Risk reversals add credence to the USD/CAD's decline to three-week lows.
The USD/CAD one month 25 delta risk reversals (CAD1MRR) are being paid at 0.1 CAD puts vs. 0.3 CAD puts on April 26.
The drop in the implied volatility premium for CAD puts (from 0.3 to 0.1) is indicative of the falling demand for the CAD bearish bets (puts)/USD bullish bets (calls).
Further, it also adds credence to the drop in the USD/CAD to a three-week low of 1.2743 (yesterday's low), meaning the investors do not expect CAD to build on the recent rally and hence are moving out of CAD bearish bets.
The USD/CAD will likely drop further and the risk reversals may turn negative, indicating increased demand for CAD bullish bets if the Candian jobs data betters estimates. NAFTA related optimism could also put a bid under the Canadian dollar.
CAD1MRR
