USD/CAD risk reversals - CAD bearish bias strongest since early September

• USD/CAD risk reversals rise to a 6-month high. 
• Rising demand for CAD puts adds credence to rally in the spot. 

USD/CAD one-month 25 delta risk reversals (CAD1MRR) show the implied volatility premium for CAD puts (bearish bets) has risen sharply in the last 30 days or so, tracking the rally in the USD/CAD spot from 1.2247 to 1.23. 

As of writing, the risk reversals are being paid at 0.30 CAD puts vs. 0.2 CAD calls on Feb. 1. The rise in the implied vol premium for CAD puts indicates increased demand for bearish bets, meaning investors expect a further drop in the Canadian dollar. 

The pair hit a high of 1.3001 yesterday and was last seen trading at 1.2965. The 5-day moving average (MA) and the 10-day MA are trending north, indicating a short-term bullish setup. So a pullback as suggested by the overbought daily relative strength index (RSI) could be short-lived. 

Risk reversals