FxWirePro: Trade and hedge AUD/NZD via ‘Options Strips’

AUDNZD in a neutral state near term, a 1.0700-1.0800 range likely to contain.

But in medium-term perspective: We could foresee the potential for a further decline towards 1.06 during the next month, given recent interest rate and commodity movements have slightly favored the NZD. Further out, we target 1.12 which is close to fair value.

On both trading and hedging grounds, AUDNZD major downtrend has been drifting in consolidation phase but now jerky in the medium run, this may cause price slumps upto 1.08 levels (recent lows).

We expect the 1.0690 areas which can’t be disregarded if iron ore remains under downward pressure. A retest of the 1.09 area is also 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.

Contemplating above fundamental developments and the ongoing technical trend of this pair, to participate in the puzzling swings, we advocate option strips strategy that contains 3 legs of vega longs (2 puts plus 1 call). The option strips that likely to fetch desired yields regardless of the trend but more potential on southwards by arresting bearish risks.

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

Please be noted that the strategy is likely to derive positive cashflows regardless of the underlying spot FX moves with more potential on the downside (please also be noted that the tenors shown in the diagram are just for demonstration purpose, use accurate tenors as per the requirements).

Currency Strength Index: FxWirePro's hourly AUD spot index is flashing at -74 levels (which is bearish), while hourly NZD spot index was at shy above -4 (neutral) while articulating (at 07:39 GMT). For more details on the index, please refer below weblink:

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

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