FxWirePro: AUD/JPY macros outlook and option trades perspectives

Enduring macro trends in FX remain elusive as the passage of time has resolved few uncertainties in the past month.

We expect AUDJPY to decline through 2017 on skinnier rate differentials and a pull-back in commodity prices.

Australian Macro Outlook:

In the recent RBA monetary policy meeting, cash rate was left unchanged at 1.5% in the recent monetary policy meeting, as widely anticipated and forecast continues to maintain status quo in the near future.

The recent data flow has been mixed; retail sales slumped while building approvals bounced.

Coal prices have spiked higher in the aftermath of Cyclone Debbie, but any price rise should be temporary. Coal prices have risen by 15% in the past week, as the market takes into account the impact of supply disruptions.

From last month’s surprise, weakening increases the significance of last week’s labor data which has remained unchanged.

The strong inbound migration to nudge Kiwi retail card sales higher.

Japanese Macro Outlook:

Business sentiment improved from the end of last year but remains cautious.

While the PMI rose as services strengthened and manufacturing declined.

Wage inflation has been remained anemic.

Inflation expectations have been flat since the BoJ introduced its inflation overshoot commitment.

Option Trade Recommendations:

we advocate following trades on hedging grounds:

Buy a 6M 80.00 AUDJPY one-touch put, sell a 3M in premium-rebate notional.

Buy 3M AUDUSD ATM vs sell 1Y AUDJPY 25D Put, 1.5:1 AUD vega.

Buy 4M sell 2M AUDJPY OTM put at 83 strike in 1:0.753 notionals.