Moody's Upgrades Argentina's Credit Rating Amid Economic Reforms 
Bank of Japan Signals Cautious Path Toward Further Rate Hikes Amid Yen Weakness 
Fed Governor Lisa Cook Warns Inflation Risks Remain as Rates Stay Steady 
Moldova Criticizes Russia Amid Transdniestria Energy Crisis 
MAS Holds Monetary Policy Steady as Strong Growth Raises Inflation Risks 
Bank of Canada Holds Interest Rate at 2.25% Amid Trade and Global Uncertainty 
UBS Projects Mixed Market Outlook for 2025 Amid Trump Policy Uncertainty 
US Futures Rise as Investors Eye Earnings, Inflation Data, and Wildfire Impacts 
Jerome Powell Attends Supreme Court Hearing on Trump Effort to Fire Fed Governor, Calling It Historic 
Gold Prices Slide as Rate Cut Prospects Diminish; Copper Gains on China Stimulus Hopes 
U.S. Treasury Yields Expected to Decline Amid Cooling Economic Pressures 
Lithium Market Poised for Recovery Amid Supply Cuts and Rising Demand 
Oil Prices Dip Slightly Amid Focus on Russian Sanctions and U.S. Inflation Data 
ECB’s Cipollone Backs Digital Euro as Europe Pushes for Payment System Independence 
AUDNZD has been oscillating between 1.1425 and 1.0025 levels from the last 5 years (refer above chart). The upswings, from the last couple of days, are targeting 1.0685 levels with potential for even higher. The main driving forces at this juncture, is the reversal of NZ-AU yield spreads following the RBNZ’s shift to an easing bias (while the RBA remains neutral). AU economic data has been strong too (retail sales, trade). There’s little major economic news out this week, apart from consumer confidence.
As you could observe AUD’s underperformance in the medium term perspective since August 2018, was majorly due to the cooler outlook for global growth, with China especially in focus, as well as growing expectations of RBA rate cuts. AUDNZD is extremely undervalued, according to interest rates and commodity prices, and there are early signs of a reversion towards a fair value which could take the cross towards 1.0750 over the next few weeks.
AUDNZD Strangle Shorts: Contemplating the major trend that has been range-bounded (oscillating between 1.1425 and 1.0025 levels), it is wise to deploy (0.5%) out-of-the-money call and (0.5%) out-of-the-money put options of 1m tenor. 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 Puts: Considering non-directional movements in the underlying spot FX, 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 put 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, on hedging grounds, buy 2m ATM delta puts and ATM delta call of similar tenor and short (1%) in the money put options of 1w are advocated.
Currency Strength Index: FxWirePro's hourly AUD spot index is inching towards 128 levels (which is highly bullish), while hourly NZD spot index was at 119 (highly bullish) while articulating (at 10:17 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex
