FX/Commodity Correlation -

One thing that I like playing in FX space is commodity beta currencies, as they tend to have various source of risks to fuel their volatility (both RV and IV)... currencies like EM commodity producing (ZAR, MXN, RUB, BRL) and DM (CAD, NOK, AUD, NZD)
are always the places where you can find both idiosyncratic monetary policy risks (see hawkish BoC/Norges Bank), and commodity driven price action...

The most noticeable currency on my vol radar right now is CAD for the two reasons mentioned above
1. BoC turned quite hawkish on its last meeting, but very likely to play down further CAD strength in its next meeting (after the next two CPI/Payroll reading prior to its July 14th meeting)

2. Some decent unwinding in commodity complex going on, which drives down oil prices
if we look at the correlation between Bloomberg Commodity Index (BCOM) and CADCHF, we can see a significant beta, so given further decline in commodity prices we can get further weakness in the pair
Intra-commodity bloc trades are also somewhat interesting, as trading the relative strength of metals/energy (or the volatility of that ration) can be done in a relative cheap cost with AUDCAD, NZDCAD due to the implied FX correlation (AUDUSD-USDCAD or NZDUSD-USDCAD)

Just my 2c.

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8 May
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