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What a Volatility Spike Could Do for the Dollar

Thursday, 17 May 2012 | 1:06 PM ET
Nick M Do | Photodisc | Getty Images

Based on past bouts of big market swings, the dollar could get a meaningful lift if volatility rises.

Sure, investors are looking for safe havens as worries mount over the euro zone crisis. But according to Camilla Sutton, chief currency strategist at Scotia Capital, you ain't seen nothing yet.

Sutton thinks that if volatility heats up and the widely followed VIX index closes above 23.5, up from current levels around 22.7, the move for the dollar against the Canadian dollar could be big.

"We are teetering on the edge of a spike in the VIX. It could come today; however so far markets are attempting to stabilize, which is encouraging," she told me.

Sutton estimates that the dollar would only test 1.02 against the Canadian dollar if markets do not break out of the current volatility range.

But then there's the what-if. "If we do break out of the range in volatility, USDCAD is more likely to spike up to 1.08," Sutton wrote in a note to clients. She also says that a spike would be brief, but retracement of those unusual levels could take some time.

Your move.

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