The year so far has been something of a wild ride on FX, certainly comparing the volatility of 2014 with that seen this year. The fact that money markets have, on balance, removed a Fed rate increase before year end is one factor that has depressed volatility together with the quelling of volatility in China that was proving to be the headache over the summer. We’ve seen the impact of this on measures of FX implied volatility, such as the CVIX from Deutsche Bank, which is now just off the lows of the year which were seen earlier this month. We’re seeing a similar picture in actual volatility, as seen in the 1 month (simple) average true range for EURUSD, which is at levels last seen in early January of this year, just under 100 pips. The picture is not quite as acute for other majors, although yen volatility has been falling fairly dramatically in recent days.
Overnight, we’ve had a change of government in Canada, with the Liberal Party pushing out the incumbent Stephen Harper. Most polls were suggesting a Liberal minority so the result was against expectations. There’s not been much of a discernible impact on the CAD, with the initial weakness seen during the Asian session soon reversed. The CAD is more focused on the tone of the policy statement that will accompany tomorrow’s interest rate decision. As the European session gets underway, we’re seeing a modest bid tone to sterling and the euro, with the yen under some selling pressure.