FxWirePro: Significance of Gamma in Antipodean FX

We expect the RBNZ to cut the OCR by 25bp in May and then remain on hold until 2020 when a weaker NZ economy will require a further cut. That should keep 2yr swap yields depressed, with fresh record lows below 1.60% likely.

Antipodean crosses will probably continue to deliver in gamma. We have admittedly been surprised by the firmness of AUD and NZD-cross gamma in 1Q as the RBA and RBNZ effected unexpected dovish turns in monetary policy. Their rate markets may experience continued choppiness in the run-up to actual rate cut delivery or expectations thereof in late Q2/Q3 which should filter through to FX. 

It must be emphasized that gamma outperformance is more likely in AUD and NZD crosses than in USD pairs, since the latter is capped to a greater extent both by the trendless broad dollar as well flows that supply optionality to the market (e.g. supply of AUD puts/USD calls from Australian corporates as a part of hedging flows) and impede runaway FX weakness. 

Currency Strength Index: FxWirePro's hourly AUD spot index is flashing 135 (which is highly bullish), while hourly USD spot index was at shy above 135 (highly bullish) at 10:10 GMT. Courtesy: JPM

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