The Bank of Canada kept its policy rate at 2.25% on Wednesday, in line with expectations. The statement pointed to weaker growth prospects and the risk of higher inflation in the near term. Policymakers said recent data showed economic activity was falling short of forecasts. They said the balance of risks had shifted towards slower growth. They warned that higher petrol prices and the conflict in the Middle East were likely to push inflation up in the short term. The bank also noted that financial conditions are already tighter. Governor Tiff Macklem said the bank will take decisions meeting by meeting. He said rates could rise if energy-led inflation persists and feeds into core measures, or fall if energy prices ease and economic weakness deepens. Senior Deputy Governor Carolyn Rogers said the bank is relying more on high-frequency indicators. She also referred to improved methods for judging supply shocks. The bank gave no clear signal of near-term cuts. It kept the option of further tightening if inflation pressures broaden. When we look back at the situation in 2025, the Bank of Canada was clearly stuck between slowing growth and rising inflation risks. They held rates steady at 2.25% but kept the door open to move in either direction, creating significant uncertainty. This left the Canadian Dollar in a finely balanced position, with downside risk from a weak economy but supported by the potential for a future rate hike. The situation today, on March 18, 2026, feels very similar, which gives us a playbook for the coming weeks. We just saw the latest CPI data show inflation ticking up to 3.1%, stubbornly above the bank’s target, while last quarter’s GDP growth was nearly flat at 0.1%. This data reinforces the same stagflationary pressures we saw last year, suggesting the Bank will remain in its wait-and-see mode. Given this two-sided risk from the Bank, traders should consider buying volatility. A long straddle on June CORRA futures could be effective, as it would profit from a large rate move whether the Bank is forced to hike due to persistent inflation or cut due to a faltering economy. The key is that the Bank’s indecision likely means that when they finally do act, the market move will be sharp. For those who believe the Bank will remain paralyzed for another quarter, selling options to collect premium is a viable strategy. An iron condor on the USDCAD exchange rate, centered around the current spot price, would profit if the currency pair remains range-bound as markets await a clear signal. This strategy benefits directly from the kind of policy stalemate we are currently witnessing. However, given the extremely weak growth figures, we should also be prepared for a dovish surprise from the central bank. Traders holding long CAD positions should consider buying out-of-the-money put options as a low-cost hedge. This protects against a scenario where the Bank prioritizes the weak economy and signals future rate cuts, which would send the Canadian Dollar lower.

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Latin American sovereign bonds have the highest global holdings, at about 14% above their rolling 12-month average, and are slightly higher year to date. The region has no underheld currencies, while fixed income holdings have declined by less than 2 percentage points. Short utilisation for the region’s debt has been falling, alongside modest trimming in positions. Limited foreign exchange and interest rate hedging has left Latin American fixed income more exposed to a sudden pullback if US policy or wider financial conditions change.

Brazil Selic Decision In Focus

Ahead of Brazil’s Selic rate decision, market expectations shifted from a 50 basis point cut to 25 basis points, from a starting rate of 15%. Policy expectations were adjusted even though the region is described as having lower economic exposure to the current conflict. The article states that limited hedge activity reflects expectations of little direct tightening via the US dollar or US rates. It also says that without protection against the opposite outcome, Latin American assets, especially fixed income, could face sharper moves if Federal Reserve scenarios or broader financial conditions change. We are seeing that Latin American bonds remain a very crowded trade, with current holdings sitting about 14% above their one-year average. This popularity is a concern because it suggests complacency has set in among investors. The minimal decline in holdings has been attributed to a global repricing of inflation, not a genuine move away from the region. The key vulnerability we see is the extremely low level of hedging against a rise in U.S. interest rates or a strengthening dollar. Looking at the options market, implied volatility for the Mexican Peso and Brazilian Real is sitting near two-year lows, making protective put options unusually cheap right now. This suggests the market is not pricing in any significant risk from U.S. financial conditions.

Low Hedging Leaves Crowded Trade Exposed

This complacency seems rooted in the belief that the Federal Reserve will remain on hold, following the easing cycle we saw through much of 2025. In fact, Fed funds futures currently show the market is pricing in a stable policy rate of 3.25% for the remainder of the year, with less than a 10% chance of a hike. This consensus leaves any unexpected hawkish shift from the Fed as a major catalyst for a sell-off. Given this asymmetry, a prudent strategy is to buy cheap, out-of-the-money put options on the region’s main currencies or on a major LatAm bond ETF like EMB. This offers a low-cost way to gain significant exposure to a sharp pullback if financial conditions tighten unexpectedly. The declining use of short positions on this debt further indicates that very few are positioned for this negative outcome. We saw a similar setup before the “Taper Tantrum” back in 2013, when a surprise shift in Fed guidance caused massive outflows from unhedged emerging market assets. Last week’s data showed continued inflows into Latin American debt, confirming the market remains heavily one-sided. This positioning leaves the entire segment highly exposed should history repeat itself. Create your live VT Markets account and start trading now.

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GBP/USD fell 0.21% to about 1.3320 on Wednesday after US producer inflation data beat forecasts. The US Dollar Index rose 0.20% to 99.76. The US Producer Price Index rose 3.4% year on year in February, above estimates and January’s 2.9%. Core PPI rose to 3.9% year on year from 3.5%.

Market Drivers And Risk Backdrop

Market news also focused on the Middle East after Israel attacked Iran’s gas facilities. Tehran said it would strike the enemy’s infrastructure, according to Al-Jazeera. Markets are waiting for the Federal Reserve decision, with rates expected to stay unchanged alongside updated projections. Attention is on the dot plot and then Fed Chair Jerome Powell’s press conference. Focus then shifts to the Bank of England decision on Thursday. Markets expect the Bank Rate to stay at 3.75%, with the first expected move towards a rate hike in March 2027. On the chart, resistance is seen at 1.3355–1.3360, then 1.3450 and 1.3530. Support levels include 1.3300, 1.3220 and 1.3100.

Trade Setup And Positioning

With US producer inflation coming in hot, we should anticipate the Federal Reserve will signal a more hawkish stance. The unexpected 3.4% rise in the Producer Price Index adds to the recent February Consumer Price Index report, which showed core inflation holding firm at 3.3%. This persistent inflation makes near-term Fed rate cuts less likely, strengthening the US dollar. The probability of a Fed rate cut by June has now dropped below 40%, according to the CME FedWatch Tool, a sharp reversal from the 70% chance priced in just last month. This rapid shift in expectations supports strategies that benefit from a stronger dollar against currencies like the pound. We should consider positioning for the DXY to test the 100.00 level in the coming weeks. Geopolitical tensions in the Middle East are also pushing capital into the safe-haven dollar, adding another layer of pressure on GBP/USD. The CBOE Volatility Index (VIX), a key measure of market fear, has already jumped from 14.5 to 17.2 this week, suggesting traders are buying protection against further uncertainty. This environment favors holding long-dollar positions as a hedge. We saw a similar pattern in late 2025 when unexpected inflation data led to a sharp repricing of central bank expectations and a spike in currency volatility. That period rewarded traders who were positioned for a stronger dollar and higher-for-longer interest rates. The current setup feels reminiscent of that time, warranting a cautious and defensive posture. The divergence between the Fed’s likely path and the Bank of England’s more static outlook is becoming a primary trading theme. With the BoE expected to hold rates at 3.75%, the widening interest rate differential should continue to weigh on the pound. We are looking at selling GBP/USD futures or buying outright put options to capitalize on this growing policy gap. Given the upcoming central bank meetings, we can expect implied volatility for GBP/USD options to rise. Buying put options with a strike price below the 1.3300 support level offers a clear way to play for a downside break. A put spread, buying a 1.3250 put and selling a 1.3150 put, could be a cost-effective alternative to express this bearish view. The technical breakdown below the 1.3510 moving averages reinforces our fundamental view. A failure to hold the 1.3300 level would open the door for a test of the 1.3220 support zone. We see any rallies toward the 1.3360 resistance area as opportunities to initiate or add to short positions. Create your live VT Markets account and start trading now.

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Russia’s producer price index rose by 0.5% month on month in February. This followed a -2.5% reading in the previous month. The change marks a move from a monthly fall to a monthly rise. The data compares prices received by producers between January and February.

Producer Price Reversal Signals Inflation Return

The shift in Russia’s producer prices from a -2.5% decline to a 0.5% increase is a sharp reversal. This indicates that the deflationary pressures we observed at the end of 2025 have likely bottomed out. We should now anticipate a potential resurgence of inflationary pressure at the wholesale level. This data directly challenges the market’s recent consensus for a Central Bank of Russia (CBR) rate cut in the second quarter. With the CBR’s key rate currently holding at 9.5% and January’s consumer inflation still above target at 5.8%, this producer price strength gives policymakers a reason to stay hawkish. The odds of rates remaining higher for longer have now increased significantly. A key driver for this is the strong recovery in commodity prices throughout early 2026. Brent crude has rallied over 15% since the start of the year, recently breaking above $95 per barrel for the first time since 2024. As Russia’s economic health is tied to energy exports, this price strength feeds directly into producer revenues and costs. For derivative traders, this suggests positioning for a stronger ruble may be prudent. We could consider buying RUB call options or shorting USD/RUB futures, as the combination of high oil prices and a hawkish central bank is a classic bullish signal for the currency. This environment makes it less attractive to bet against the ruble. In the rates market, we should anticipate that forward contracts will reprice to reflect lower odds of a near-term rate cut. Paying fixed on Russian interest rate swaps could be a viable strategy to hedge against, or profit from, the view that borrowing costs will not be easing soon. This PPI number suggests the market has been too dovish on the CBR’s future path.

Rates Market Implications For Forward Pricing

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Russia’s Producer Price Index (year-on-year) fell to -5.2% in February. It was -5.0% in the previous reading. The latest figure shows a slightly larger year-on-year decline than before. The change from -5.0% to -5.2% is a decrease of 0.2 percentage points.

Implications For Monetary Policy

The continued decline in Russia’s producer prices, now accelerating to -5.2%, signals a deepening deflationary environment. This suggests that domestic demand is weak and companies lack the power to increase prices for their goods. We see this as a strong signal that the Central Bank of Russia will be pressured to ease monetary policy to stimulate the economy. This strengthens our expectation for a weaker ruble in the coming weeks. The Central Bank of Russia, which has held its key rate at 8.0% since late 2025, now has a clear reason to consider a rate cut. We anticipate the USD/RUB pair, which has already risen to 94 from an average of 91 in the previous quarter, will test higher levels, making call options on the pair look attractive. Consequently, we should position for lower Russian interest rates. Yields on 10-year Russian government bonds (OFZs) have already fallen 30 basis points this year, and this deflationary data could accelerate that trend. Going long on interest rate futures is a direct way to trade this expectation of a central bank pivot. For equities, the outlook is mixed but leans negative. While the prospect of cheaper borrowing is typically good for stocks, the underlying economic weakness reflected in the PPI points to poor corporate earnings ahead. We saw how the MOEX index dropped 5% in the fourth quarter of 2025 following similar weak industrial reports, so buying put options could serve as a valuable hedge.

Commodity Market Read Through

We must also view this as a potential reflection of soft global commodity prices, especially for energy and metals. With Brent crude struggling to stay above $75 a barrel, falling prices at the producer level in a major commodity exporter like Russia could reinforce a bearish outlook for the entire sector. This supports short positions in oil and industrial metals futures. Create your live VT Markets account and start trading now.

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Commerzbank’s Michael Pfister expects Brazil’s central bank to begin cutting interest rates after a long period with the key rate held at 15%. Market consensus points to an initial cut at this meeting, with only one vote previously favouring no change. Pfister says an opening cut could be 25 or 50 basis points, noting that a 50-basis-point move is possible given the level of rates. He adds that a smaller 25-basis-point step could be linked to an oil price shock, while stating that Brazil appears relatively insulated. He expects room for further cuts and forecasts the pace to increase to at least 50 basis points per meeting over the course of 2026. Commerzbank indicates it expects more, rather than fewer, cuts overall and remains cautious about the Brazilian real’s strength this year. With the Brazilian central bank poised to begin cutting rates from a high of 15%, we see opportunities in derivatives that profit from falling interest rates and a weaker currency. The main question is not if cuts are coming, but whether the first move tonight will be 25 or 50 basis points. This initial uncertainty presents a chance to trade short-term volatility. We believe the Brazilian Real is likely to weaken against the US dollar as the easing cycle gets underway. Lower interest rates decrease the appeal of the currency for carry trade strategies. Traders should consider buying call options on the USD/BRL exchange rate to position for a depreciation of the Real over the coming months. This view is supported by recent data showing that inflation has cooled considerably, with the latest IPCA reading for February 2026 coming in at 4.1%, well below the peaks we saw in mid-2025. Furthermore, sluggish GDP growth of just 0.2% in the final quarter of last year gives the central bank a clear mandate to stimulate the economy. These factors create a strong foundation for a sustained cutting cycle. Positions in local interest rate markets also look attractive. We anticipate that futures contracts on the DI rate, Brazil’s main interbank rate, will rally as the central bank enacts its cuts. Going long these futures or entering interest rate swaps to receive a fixed rate are direct ways to benefit from the expected decline in borrowing costs. Looking back at the easing cycle that began in 2023, the BRL initially proved resilient but eventually weakened as the total volume of rate cuts accumulated. We expect a similar pattern now, where the cumulative effect of several cuts will weigh on the currency more than the initial move. The pace of these cuts is expected to pick up later in 2026. Given the market is already pricing in approximately 400 basis points of cuts by year-end, the key is to position for this broader trend rather than just a single meeting. While the oil price shock last year caused some hesitation, Brazil’s relative energy independence insulates it enough for the central bank to focus on domestic conditions. Therefore, we remain cautious on BRL strength and favor trades positioned for lower rates.

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USD/JPY traded near 159.50 during the US session, moving higher ahead of the Federal Reserve decision. The Fed is expected to keep rates on hold, publish the Summary of Economic Projections, and hold a press conference with Jerome Powell. Markets are watching how the US and Israel’s war on Iran could affect Fed policy. Attention is also on the Bank of Japan decision early Thursday.

Bank Of Japan Rate Outlook

The Bank of Japan is expected to keep its benchmark rate unchanged at 0.75%. It is expected to stay cautious due to higher energy prices linked to the Iran war. In the US, the core February Producer Price Index rose to 3.9% year on year, above the 3.7% forecast. The data did not include energy price inflation linked to the Middle East war. On the 4-hour chart, USD/JPY traded at 159.43 and stayed above the 20-period and 100-period Simple Moving Averages. The Relative Strength Index moved back towards 60 after sitting near 50. Support levels were noted at 158.96 and 158.57, with the 100-period SMA near 157.70. Resistance was seen at 159.59, with a break above it pointing to new highs.

Rate Differentials And Intervention Risk

We remember the situation in March of 2025, when USD/JPY was pushing toward 159.50 amidst significant geopolitical tension from the war in Iran. The Federal Reserve was holding firm on interest rates as producer prices were already showing signs of accelerating inflation. This environment of a strong dollar and a cautious Bank of Japan created a clear path for the pair to climb higher. Looking at today’s market in March 2026, the interest rate differential remains the dominant factor driving this trade. The Fed Funds Rate is currently at 4.75%, while the Bank of Japan has only managed to inch its benchmark rate up to 1.00%, maintaining a vast gap that favors the dollar. Recent US inflation data from February 2026 showed the Consumer Price Index is still stubbornly high at 3.5%, confirming that the Fed has little room to consider aggressive rate cuts. Given that USD/JPY is now trading near 162.00, traders should consider using options to manage the heightened risk of a sharp pullback or official intervention. Buying call options allows for participation in any further upside while defining the maximum potential loss to the premium paid. Historical precedent from the 2022-2024 period shows that verbal warnings from Japanese officials become more frequent above the 160.00 level, making outright long positions increasingly risky. To further refine this strategy, traders should look at implementing bull call spreads for the coming weeks. This involves buying a call option and simultaneously selling another call at a higher strike price, which lowers the overall cost of the trade. This is particularly effective in the current climate, as one-month implied volatility on the yen has been averaging a relatively high 11.5% in early 2026, making options expensive. Create your live VT Markets account and start trading now.

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Gold traded lower on Wednesday as the US Dollar and Treasury yields rose ahead of the Federal Reserve decision due at 18:00 GMT. XAU/USD was near $4,875 after dipping to $4,834, its lowest level since February 6. US Producer Price Index data came in above forecasts. Headline PPI rose 0.7% month-on-month in February versus 0.5% in January and a 0.3% forecast, with the annual rate at 3.4% year-on-year versus 2.9%.

Fed Decision In Focus

Core PPI rose 0.5% month-on-month and 3.9% year-on-year. The Fed is expected to keep rates at 3.50%–3.75% for a second meeting, with attention on guidance and the dot plot, including the projection of one rate cut in 2026. Inflation remains above the 2% target, with CPI at 2.4% year-on-year in February, alongside higher oil prices. The labour market showed 92,000 job losses in February and unemployment rising to 4.4%. Markets also tracked the US-Israel war with Iran, including attacks on energy infrastructure and disruption in the Strait of Hormuz. Technically, gold fell below $5,000 and the 50-day SMA near $4,975, while holding above the 100-day SMA near $4,595; RSI was about 45 and MACD stayed negative. We remember the situation in 2025 when intense conflict in the Middle East and fears of escalating war sent gold soaring towards $5,000 per ounce. That geopolitical risk premium has since evaporated as tensions have de-escalated through diplomatic channels in early 2026. This has left the metal exposed to the underlying monetary policy reality.

Options Strategies For Volatility

The sticky inflation we saw last year, with producer prices running at 3.4%, never fully subsided and has now forced the Federal Reserve’s hand. Recent data for February 2026 shows the Consumer Price Index is still stubbornly high at 3.2%, prompting the Fed to abandon last year’s talk of cuts and instead hold rates in the restrictive 5.25%-5.50% range. This “higher for longer” environment makes holding non-yielding gold costly. Furthermore, the soft labor market from 2025, which saw an unemployment rate of 4.4%, has since recovered significantly. The latest figures show a more resilient jobs market with unemployment at just 3.9% and steady wage growth. This strength removes any immediate pressure on the Fed to cut rates to support the economy, adding another headwind for gold prices. Considering this backdrop, traders should consider buying put options to hedge against or profit from further declines. With gold currently trading near $2,850, securing puts with a $2,700 strike price expiring in the next 60 to 90 days offers a defined-risk way to capitalize on the bearish momentum. The technical breakdown below the 50-day moving average that we observed back in 2025 was a clear warning that played out over the subsequent months. However, we must not ignore the potential for sudden shocks, as geopolitical stability is never guaranteed. We saw in February 2022 how gold prices surged by over 13% in just two weeks following the invasion of Ukraine. Therefore, purchasing a small number of cheap, out-of-the-money call options, perhaps with a strike price around $3,100, could serve as a low-cost insurance policy against an unexpected flare-up. This conflict between persistent inflation data and the ever-present risk of a geopolitical event creates an environment ripe for volatility. A long straddle, which involves buying both a call and a put option with the same strike price and expiry date, could be an effective strategy. This position profits from a significant price move in either direction, removing the need to correctly predict the market’s next major trend. Create your live VT Markets account and start trading now.

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WTI traded near $97.50 on Wednesday, up 2.37% on the day, as conflict in the Middle East continued to affect energy markets. US strikes near the Strait of Hormuz and Israeli attacks on senior Iranian officials raised concerns about disruption to global oil flows. Iran reportedly targeted oil and gas infrastructure in the United Arab Emirates and Iraq, including upstream production sites. Qatar warned about risks to global energy security after strikes on Iran’s South Pars gas field.

Supply Routes And Shipping Risk

Iraq agreed to resume oil exports through Turkey’s Ceyhan port, which reduces reliance on routes linked to the Strait of Hormuz. Iran also allowed safe passage for certain vessels based on their affiliations, easing some near-term shipping concerns. Brent crude remained above $100, while daily volatility narrowed, according to Deutsche Bank. The bank also linked calmer trading to the Iraq–Turkey export deal and the use of alternative routes. US stock data pointed to weaker demand conditions. The API reported crude inventories rose by 6.6 million barrels, and the EIA reported a 6.16 million-barrel rise, the fourth weekly build in a row. The US sought to reopen the Strait of Hormuz, though allies declined to join. The US also issued a temporary Jones Act waiver to help move energy products and limit price rises.

Positioning For Continued Volatility

We are seeing a classic tug-of-war between geopolitical supply risks and signs of weakening demand. The key for us is not to bet on one outcome but to position for the continued volatility. This environment makes simple directional bets risky, as prices could swing sharply on the next headline from the Middle East or a weak economic report. Given this uncertainty, we should look at options strategies that benefit from price movement. The oil volatility index, the OVX, has been elevated, recently trading around 45, indicating that the market expects significant price swings in the near future. This suggests that long straddles or strangles could be effective, allowing us to profit whether WTI crude breaks above $100 or falls back toward the low $90s. On the bullish side, any further escalation near the Strait of Hormuz, through which nearly 21 million barrels of oil pass daily, could send prices soaring. To prepare for this, we are considering out-of-the-money call options for May delivery, as they offer a low-cost way to capture upside from a major supply shock. We saw a similar dynamic during the Red Sea disruptions back in 2025, where targeted attacks on shipping immediately added a risk premium to prices. However, we must respect the bearish inventory data. Last week’s EIA report showed US crude stocks rising to 465 million barrels, the highest level since the fourth quarter of 2024, signaling that supply is outpacing current demand. This makes buying put options a necessary hedge to protect against a potential price drop if recession fears begin to outweigh the conflict premium. To manage costs and define our risk, using vertical spreads is a prudent approach in the coming weeks. For instance, a bull call spread would allow us to profit from a modest price increase while limiting our upfront premium cost. We remember how oil prices spiked above $120 after the conflict in Ukraine began in 2022, only to fall back later that year as global growth concerns took hold, reminding us that geopolitical rallies can be short-lived. Create your live VT Markets account and start trading now.

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Bank of Canada Governor Tiff Macklem spoke after the bank kept its policy rate at 2.25%. He said decisions will be made one meeting at a time, with time to assess the Iran conflict and its effect on the economy. Macklem said the conflict’s impact on Canada depends on how long it lasts and could change the mix of growth. He said the bank is using high-frequency, near-term data and is improving how it judges supply shocks.

Inflation And Growth Risks

He said a sharp rise in petrol prices will lift total inflation in coming months and the Middle East conflict will raise global inflation in the near term. The BoC said near-term Canadian growth looks weaker than expected in January, with growth risks tilted to the downside while inflation risks have increased. Macklem said the BoC does not expect rapid pass-through from higher energy prices, but could raise rates if energy prices drive persistent inflation. He said rates could be cut if energy prices fall and the economy weakens. Ahead of the decision, markets expected rates to stay at 2.25%, with about 10 bps of hikes priced for this year and about 42 basis points of tightening by end-2026. After the decision, USD/CAD revisited the 1.3710–1.3720 area, with USD/CAD above 1.3700. The Bank of Canada is signaling a readiness to act in either direction, creating significant uncertainty. With growth risks tilted down but inflation risks up, the path for interest rates is not clear. This environment suggests that volatility in Canadian markets is likely to increase in the coming weeks.

Energy Shock And Market Positioning

We see that the conflict in Iran is the main driver, pushing global energy prices higher. Recent reports show WTI crude oil has breached $95 a barrel, a level not seen since the conflict began and reminiscent of the spikes in 2022. Governor Macklem has been explicit: if these prices lead to persistent inflation, the Bank is prepared to raise its 2.25% policy rate. However, domestic data points to a slowdown that complicates any decision to hike. The latest retail sales figures for January 2026 showed a contraction of 0.5%, confirming the Bank’s view that near-term growth will be weaker. This puts the focus squarely on incoming data to see if inflation is becoming broad-based or if the economy is faltering. Traders should therefore be positioned for a spike in volatility around the next Consumer Price Index release. The February CPI report showed core measures remaining stubbornly above the 2% target, even as the headline number dipped to 1.8% before the recent energy surge. A high print for March could force the Bank’s hand, making options on short-term interest rate futures particularly sensitive. For currency traders, this situation currently favors continued weakness in the Canadian dollar. While high oil prices are normally a tailwind for the CAD, the stronger US dollar and Canada’s slowing domestic economy are more powerful forces, keeping USD/CAD elevated above 1.3700. We could see a test of the March high of 1.3752, with a move toward the 200-day moving average near 1.3800 possible if US economic data remains strong. Given the two-sided risk presented by the Bank, strategies that benefit from price movement itself are attractive. Buying options to hedge against a surprise hike or an unexpectedly sharp economic downturn could prove prudent. The Bank has given itself maximum flexibility, meaning traders should prepare for anything rather than betting on a single outcome. Create your live VT Markets account and start trading now.

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