FxWirePro: A Quick Run Through On Relative Strategic AUD Shorts Via Options Structures

In this write-up, we run you through Aussie short via put options spread structure coupled with writing a put of another Aussie pair. 

Stay short in AUDCHF via put spread financed through a AUDNZD put.

This is a part hedge to pro-growth trades which shouldn't necessarily lose money if Euro area growth does step up. 

The 5c fall since early Nov could stretch to the 1.0300 area, with NZ’s better fundamental backdrop (including yield spreads and commodity prices) and expectations of RBA QE weighing. Fair value remains much higher but will require global tensions (trade and geopolitical) to subside.

Q4 2019 included two key positive developments for global risk appetite – the Brexit deal breakthrough and the US-China “Phase One” trade deal. This was enough for the Aussie to reach highs since July, probing above 0.70 around year-end as USD lost safe haven demand. Domestically, Australia continues to print trade surpluses and iron ore’s recent 3-month highs were backed by a bounce in copper prices (coal remains a weak spot). Yet we expect the RBA to lower its Australia growth forecasts and cut the cash rate in Feb, an outcome only about 50% priced. Devastating bushfires only reinforce pressure on the fragile consumer. The Aussie should struggle around 0.70, with risks back below 0.68 on anticipation of or delivery of a Feb cut.

AUDCHF is vulnerable to RBA QE, while AUDNZD will be supported by pressure on the RBNZ to match the RBA to maintain competitiveness. 

Long a 6M AUDCHF 0.66 / 0.64 put spread, short a 6M AUDNZD 1.03 put. Paid 38bp. Marked at 22 bps. Courtesy: JPM & Westpac