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As stated in our recent technical analysis, AUDNZD has developed bullish traction at least for the short-term trend and downside risks in the long-run.
The relative commodity prices and central bank outlooks continue to support AUD outperforming NZD.
If US-China trade tensions subside, then AUDNZD should continue rising in the near terms, relative AU/NZ economic growth favouring the AUD. The 1.1250 area (where it peaked in 2017) is a possible target.
With the RBA expected to be on hold for the foreseeable future short-maturity interest rates are well anchored. 3yr swap rates have been in a 2.10 – 2.35% range throughout 2018, and we would not expect that range to shift over the next few months.
But in the medium/long-run, we cannot afford to rule out bearish risks completely.
AUDNZD Options Trade Perspectives:
Strangle shorts: As you could observe the swings in the major trend have been oscillating between 1.1423 and 1.0333 levels since June 2015, it is wise to deploy (0.5%) out-of-the-money call and (0.5%) out-of-the-money put options of 1m tenor as shown in the diagram. 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 calls:
Considering non-directional movements in the underlying spot FX (refer above chart), 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-terms.
Well, on hedging grounds, execute strategy by buying 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 -4 levels (which is neutral), while hourly NZD spot index was at 28 (mildly bullish) while articulating (at 07:28 GMT). For more details on the index, please refer below weblink:
