The momentum remains negative, the next target 0.7145 (May low).
AUDUSD 1-3 month: Foresee potential below 0.7200 up to 0.70 levels. The US dollar has had an impressive rise since the US election and has a potential to rise further during the months ahead.
The Fed’s assertive tightening projections (hinted 3 hikes in 2017) plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar.
Against that coal and iron ore are likely to sustain a good portion of their dramatic rises, and economic data should improve in Q4 and Q1, but these forces are subservient to the US dollar’s trend. There’s also the issue of Australia’s AAA rating, seen at risk.
OTC updates and hedging Framework:
Please be noted that the implied volatility of at the money contracts of this APAC pair has been dropped below 10% for 1m expiry and shy above 11% for 3m tenors, while 3m IV skews are signifying the hedgers’ interests in downside risks.
Additionally, the delta risk reversal reveals divulge more interests in hedging activities for downside risks. As a result, we can understand ATM puts have been costlier with the forecasts below 0.72 levels in Q1’2017.
So, the speculators and hedgers for bearish risks are advised to optimally utilize the upswings in short run and bid on 3m risks reversals.
The OTC options market appeared to be more balanced on the direction for the pair over the 3m to 1y time horizon and as a result delta risk reversal for AUDUSD has been maintaining negative which means puts are in higher demand and overpriced comparatively.
Hence, AUDUSD's lower IVs with positive delta risk reversals could be interpreted as the option writer’s opportunity in short run.
Weighing up above aspects, we eye on loading up with fresh longs for long-term hedging, more number of longs comprising of ATM instruments and ITM shorts in short term would optimize the strategy.
So, the execution of hedging positions goes this way:
“Short 1m (1.5%) ITM put option as the underlying spot likely to spike mildly, simultaneously, go long in 1 lot of long in 3m ATM +0.49 delta put options and 1 lot of (1.5%) OTM -0.37 delta put of 3m expiry.”


US Futures Rise as Investors Eye Earnings, Inflation Data, and Wildfire Impacts
Stock Futures Dip as Investors Await Key Payrolls Data
Global Markets React to Strong U.S. Jobs Data and Rising Yields
Bank of America Posts Strong Q4 2024 Results, Shares Rise
BTC Dips on Trade Tension Ease, But 450 BTC/Day Whale Says “Buy More” – Eyes $107K Glory
RBA Deputy Governor Says November Inflation Slowdown Helpful but Still Above Target
US Gas Market Poised for Supercycle: Bernstein Analysts
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data
U.S. Banks Report Strong Q4 Profits Amid Investment Banking Surge
Oil Prices Dip Slightly Amid Focus on Russian Sanctions and U.S. Inflation Data
Indonesia Surprises Markets with Interest Rate Cut Amid Currency Pressure
2025 Market Outlook: Key January Events to Watch
Markets React as Tensions Rise Between White House and Federal Reserve Over Interest Rate Pressure




