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Short GBP/CAD Via Call Spread Expiring With A 1.5% Loss‏

ByDanske Markets
Published 06/25/2013, 07:50 AM
Updated 05/14/2017, 06:45 AM
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We take a 1.5% loss on our bearish 3M GBP/CAD call spread which expired on 24 June 2013.

In FX Trends: GBP and JPY to be left behind with the worst policy mix (22 March 2013), we recommended going short GBP/CAD via a call spread (sold 1.5000 call, bought 1.5640 call - paid 400 CAD pips premium initially), i.e. the so-called 'Carney trade'. Back then, we held a rather bearish view on GBP as we thought incoming Bank of England (BoE) governor Carney was set to do all he could to prop up the stalling U.K. economy. At the same time, it looked as if it would be a completely smooth transition to a new Bank of Canada chief with deputy Macklem taking up the top post after Carney.

In the meantime, U.K. data have evolved more favourably than we anticipated, making it much more difficult for Carney to implement a major turnaround of BoE policy even after the Treasury tweaked the BoE remit to encourage more activist monetary policy. Also, while still decent, Canadian data have been less upbeat than we envisaged despite the ongoing U.S. recovery, and from his first policy remarks it seems new BoC head Poloz (from 1 June) may be looking to downplay the BoC's long-standing hiking bias.

We continue to see some downside to sterling (GBP/USD target at 1.46 in 6M) but are now more cautious on all commodity currencies in an environment where the Fed looks to scale back on QE and China shifts down one gear (at least!) as the Chinese authorities have become much more tolerant of lower growth.

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