FxWirePro: RBA’s status quo trims Aussie gains - AUDNZD FX Derivatives Trade Perspectives

AUDNZD reversed sharply after the RBNZ last week and now targets 1.04 multi-week. The RBA today maintained a neutral stance keeping cash rates at 1.50%, which contrasts with the RBNZ’s easing bias and puts a heavy lid on their pairs. On the flip side, there’s plenty of AU event risk ahead, with March jobs data on 18 Apr, and a federal election due in May. 

AUDNZD Short Hedge: Yesterday, we advocated short hedges although fundamentals (commodity prices and interest rates) argue the cross should be higher (fair value is 1.09), 

on hedging grounds upon RBA’s monetary policy outlook, long-term investors are advised to uphold short in futures contracts of mid-month tenors. The writers of the futures contract are expected to maintain margins in order to open and maintain a short futures position.

AUDNZD’s medium-term perspective: AUD underperformance over the past six months is majorly owing to the cooler outlook for global growth, with China especially in focus, and also growing expectations of RBA rate cuts. 

Writing a Strangle: As you could observe the swings in the major trend have been oscillating between 1.1423 and 1.0333 levels since June 2015, it is wise to deploy (0.5%) out-of-the-money call and (0.5%) out-of-the-money put options of 1m tenor as shown in the diagram. 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 calls: 

Considering non-directional movements in the underlying spot FX (refer above chart), 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 call 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, buy 2m ATM delta puts and ATM delta call of similar tenor and short (1%) in the money call options of 1w are advocated. Courtesy: TradingView.com & Westpac

Currency Strength Index: FxWirePro's hourly AUD spot index is inching towards -45 levels (which is bearish), while hourly NZD spot index was at -129 (bearish) while articulating (at 05:48 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex