Oil will carry on lower, and so USDCAD will continue higher. The pressure on most oil producers to keep pumping to maintain cash flow – such as Saudi Arabia with its budgetary commitments and Yemen problem, and shale producers with their debt financing – remains strong. Canada’s growth outlook is weak, and its oil product is out of favour, with Canada tar sands back to a wide $20/bbl discount to WTI. US data flow is decent. Consider the following:
– Buy USDCAD on pullbacks to 1.3050 and 1.2950, with a stop below 1.2800. Buying USDMXN would be a second choice.
– Buy a 1.3250 vs 1.3450 USDCAD call spread for Sept. 28, with a 1.3775 kick-in on the higher strike. With spot at 1.3135, this costs 0.5825% of face.
– Buy a 1.3325-strike USDCAD call for Sept. 18, with window barriers at 1.2875 and 1.3375 expiring Aug. 31. With spot at 1.3135, this costs 0.23% of face.
Key dates for the options trades are Canada June GDP data on Sept. 1, US and Canadian payrolls data on Sept. 4, the Bank of Canada meeting Sept. 9, and the FOMC Sept. 17.
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