FxWirePro: AUD/NZD Vega long legs in puts of options strips to rescue bearish risks during NZ polls then – Uphold strategy on hedging grounds ahead of RBA now

It was just a few days ago when options strip that was advocated to hedge AUDNZD during the New Zealand general election took place on Saturday 23 September 2017 to determine the membership of the 52nd New Zealand parliament. The previous parliament was elected on 20 September 2014 and was set to expire on 10 October 2017 if not dissolved earlier. It was dissolved on 22 August 2017.

The leader of the New Zealand First party (Winston Peters), who emerged as the kingmaker has said no decisions would be made on coalition partners until after the final tally of votes is released on 7 October.

For tomorrow, RBA is scheduled to be announced its cash rates today during Australian hours, we would like to uphold the same options strategy on hedging grounds.

Our RBA outlook (on hold for some time) is anchoring short-maturity interest rates and should keep 3yr swap rates in a 1.8% to 2.3% range, as long as core inflation remains below 2%. Longer maturity rates will largely follow US rates. We foresee bullish AUD if the Australian central bank adopts a more hawkish tone to its communications.

AUDNZD in medium-term perspective: Expect the 1.0809 area to be tested again for the day if iron ore remains under downward pressure.

A retest of the 1.1111 area seen in April is possible if iron ore’s rally since mid-June continues and global risk sentiment remains elevated.

We’ve seen the bearish impact on underlying AUDNZD movement in the major trend. Technically, the price behavior has been weaker with both leading as well as lagging indicators are bearish bias.

To participate in the recent bullish trend, we had advocated option straps strategy that contains 3 legs of vega longs (2 calls plus 1 put). Contemplating above fundamental political developments and the ongoing technical trend of this pair, we now wish to convert this strategy into option strips that likely to fetch desired yields regardless of the trend but more potential on southwards by arresting bearish risks.

The execution goes this way: Initiate 2 lots of 2w longs in Vega put options, simultaneously, add 1 lot of Vega call options of the similar expiry, the strategy is executed at net debit.

Currency Strength Index: Ahead of RBA monetary policy, FxWirePro's hourly NZD spot index is flashing at 13 levels (which is neutral), while hourly AUD spot index was at shy above -21 (which is bearish) while articulating. For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex.

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