The USD/CAD one-month 25 delta risk reversals (CAD1MRR) jumped on Thursday to the highest level since Oct. 10, as investors rushed to protect themselves from the further slide in the Canadian dollar.
Risk reversals are a gauge of investor expectations for a currency’s direction and are used to hedge against expected moves.
As of now, the risk reversals are trading at 0.175 in favor of the CAD puts (or USD/CAD calls) – the level last seen on Oct. 10. The gauge stood at 0.05 on Nov. 19. Put options are derivatives that give investors the right to sell an asset. Meanwhile, call options offer the right to buy.
The sharp rise seen in risk reversals in the last three days indicates rising demand for CAD puts (USD/CAD calls). So, it seems safe to say that investors are expecting the CAD to slide further (USD/CAD to rise further) in the near-term. At press time, the USD/CAD pair is trading at 1.3234, having clocked a five-month high of 1.3318 earlier this week.
CAD1MRR
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