CAD Strengthens Ahead of BoC

USD/CAD one-week implied volatility pumped up ahead of BoC

One-week implied volatility (IV) for USD/CAD is currently at 7.90%, up significantly from the nearly 3-year low of 5.23% seen last month. Heading into Wednesday’s BoC rate announcement the differential between the one-week and one-month is 1.5%, easily the largest gulf among the major USD-pairs, with GBP/USD next up with a differential of 0.75%. The large differential reflects the anticipated volatility this week on not only the BoC, but also the U.S. jobs report on Friday to a lesser degree.

Speaking of jobs reports, this past Friday Canada’s November report was a blow-out, which sparked the huge sell-off in USD/CAD just as it was nearing multi-month highs. The sudden, sharp downward momentum suggests we will see some additional follow-through. The support in the current vicinity looks at real risk of breaking in the days ahead.

Looking to the projected range of 12558-12836, with momentum anticipated to beget more momentum the top-side level shouldn’t be at real risk of breaking. But with the projected low down near the long-term 2012 trend-line, we may not see an extension below that point, at least not all in one clip in the coming days. Friday’s move may have taken some of the fire out of the pair in the near-term.