USD/CAD: Beware a return of volatility – CIBC

Andrew Grantham from the Canadian Imperial Bank of Commerce (CIBC) warns that it could be a good time to take out some protection against future volatility in USD/CAD.  

Key Quotes:  

“Financial markets appear to be a little too calm amid a growing trade storm. That’s true in FX markets as well. While implied volatility has picked up for the CNY recently, as the currency has weakened amid tariff talk, three-month implied volatility for USDCAD is actually below its average since President Trump took over at the Oval Office. Even if it’s still likely that protectionism fades, given great uncertainty still regarding tariffs and NAFTA, it could be a good time to take out some protection against future volatility.”

“The BoC has just hiked interest rates and GDP growth looks set to have accelerated to around 2 ½% in Q2. Yet we don’t think rates will be going up again in a hurry. Why? Well there’s obviously the uncertainty surrounding trade with the possibility of auto tariffs hanging overhead. However, there’s also the fact that the recent acceleration in growth looks a little fragile.  

“So we expect growth to slow again in Q3, leaving the BoC able to continue a very gradual approach to rate hikes and seeing the C$ weaken slightly further to September.”