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The Loonie rallies following an end to US waivers on Iranian oil imports

CAD - Canadian Dollar

The USD/CAD pair fell 0.20 percent towards 1.3364 (a stronger Loonie) after the price of crude oil jumped in overnight trading. The Trump administration announced that it will not continue waivers that allow countries to buy Iranian oil without facing US sanctions. This affects major crude oil importers including China and India.

The US dollar index is also helping the Loonie because it is trading slightly weaker, falling 0.06 percent this morning. Technically speaking, it looks like the USD/CAD might continue to trade within a range of 1.3300 and 1.3400 for today. Some catalysts that could have taken the USD/CAD pair outside of this range failed. For example, last Thursday, the USD/CAD pair did not fall any further because Canadian retail sales were better than expected in February at 0.8 percent, which was up from -0.3 percent in January and better than the expectation for 0.4 percent. Moreover, today the USD/CAD failed again to fall sharply (robust Loonie) despite the substantial increase in the price of crude oil.

The Loonie may experience difficulty increasing above the range because the FX market is “theoretically” pricing eight basis points of cuts through the year for the key Canadian rate (it stands at 1.75 percent at the moment). The BoC will have its rate decision this Wednesday at 10:00 am EST.

Key Movers

Volatility decreased as sophisticated market participants were reluctant to take positions in the FX markets. This may be due to the latest actions by the Fed, when volatility surged by the end of last year, the Fed said it was determined to push forward with higher interest rates with quantitative tightening; however, it has reversed its position over the past three months. This situation provides room for market participants to plan and removes stress on volatility.

Currency pairs such as the EUR/USD are extremely low in volatility, and this phenomenon is probably the result of sophisticated market participants selling volatility. However, betting on low volatility to stay depressed is dangerous, because there is a well-established history of volatility accelerating suddenly in a “spike” after being dormant for an extended time.

Expected Ranges

USD/CAD: 1.3328 - 1.3407 ▼

EUR/CAD: 1.4985 - 1.5051 ▼

GBP/CAD: 1.7292 - 1.7378 ▼

AUD/CAD: 0.9523 - 0.9552 ▼

NZD/CAD: 0.8913 - 0.8950 ▼