NZD was solid overnight. It is difficult to come up with likely catalysts for large moves in the NZD in the New Zealand session today, with no data or speeches due. The upward trend, which has been apparent since mid-January with the only down month being May, remains in place.

NZD initially rose from 0.7275 to 0.7335, consolidating to 0.7300. AUD/NZD extended a two-week old decline to 1.0413 – last seen on 11 July.

Monetary policy wise, both RBA and RBNZ has still got potential to cut policy rates.

Technically, bears managed to break supports at the neckline of the double top (at 1.0433 on daily charts). Despite minor upswings in a short run, the major declining trend is in conformity to the volumes and both leading lagging indicators.

Well, in order to arrest this short term upside risk and major downtrend, we run you through the differential values between both option spreads and combination strategies contemplating FX OTC market indications.

1W at the money volatilities of 50% delta calls and puts are hovering between 6.5% - 7.5% which is reasonable as the vols currently are working in the interest of option writers as you can see IVs and corresponding movements in vega.

The current 1w IVs that favour underlying spot’s upside bias but through option writing rather than holding.

Please be noted that the cost of hedging reduces in the case of put ratio back spread, which is considerably lower than that of option strips strategy = NZD 1647.39 in the case of PRBS and NZD 1386.25 for option strips strategy, Hence, hedger can also achieve the cost advantage.