Beyond the long-term picture of AUD and CAD vol, AUD/USD vol is currently getting tooexpensive. It includes an excessive volatility risk premium, unlike USD/CAD vol,which is trading at a fair level.| Societe Generale not…
Beyond the long-term picture of AUD and CAD vol, AUD/USD vol is currently getting tooexpensive. It includes an excessive volatility risk premium, unlike USD/CAD vol,which is trading at a fair level.|
Societe Generale notes the following on Friday:
The FX rate has been range-bound around 0.78 since the end of January, its realised volatility is depressed, and the main risk events are over (RBA meeting, GDP and trade data).
This premium could be partly justified by the likelihood of rate cuts at the next meetings, but the risk is heavily asymmetric since the case for more AUD/USD volatility would only materialize if the currency were to head towards new lows: Selling topside volatility on these levels is attractive.
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