FxWirePro: RBA and RBNZ keep Antipodeans sluggish - Options trades for AUD/NZD range-bounded trend

AUDNZD has been oscillating between 1.1425 and 1.0025 levels from the last 5 years (refer above chart). The upswings, from the last couple of days, are targeting 1.0685 levels with potential for even higher. The main driving forces at this juncture, is the reversal of NZ-AU yield spreads following the RBNZ’s shift to an easing bias (while the RBA remains neutral). AU economic data has been strong too (retail sales, trade). There’s little major economic news out this week, apart from consumer confidence. 

As you could observe AUD’s underperformance in the medium term perspective since August 2018, was majorly due to the cooler outlook for global growth, with China especially in focus, as well as growing expectations of RBA rate cuts. AUDNZD is extremely undervalued, according to interest rates and commodity prices, and there are early signs of a reversion towards a fair value which could take the cross towards 1.0750 over the next few weeks. 

AUDNZD Strangle Shorts: Contemplating the major trend that has been range-bounded (oscillating between 1.1425 and 1.0025 levels), it is wise to deploy (0.5%) out-of-the-money call and (0.5%) out-of-the-money put options of 1m tenor. The strategy can be executed at the net credit and certain yields would be derived in the form of initial premium received as long as the underlying spot FX remains between OTM strikes on the expiration.

3-Way Straddles Versus ITM Puts: Considering non-directional movements in the underlying spot FX, 3-way straddles are advocated, the strategy comprises of at the money +0.51 delta call, at the money -0.49 delta put options and short in the money put options of narrowed expiry with a view of arresting potential FX risks on either side but capitalizing on minor upswings in the near-term. Hence, on hedging grounds, buy 2m ATM delta puts and ATM delta call of similar tenor and short (1%) in the money put options of 1w are advocated.

Currency Strength Index: FxWirePro's hourly AUD spot index is inching towards 128 levels (which is highly bullish), while hourly NZD spot index was at 119 (highly bullish) while articulating (at 10:17 GMT).

For more details on the index, please refer below weblink:

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