AUD seems adjusting higher after RBA's unchanged monetary policy. The statement's description of the AUD was little changed, saying "the exchange rate has been adjusting to the evolving economic outlook [previous: continued its adjustment]."

We continue to expect the RBA to stay on hold, despite its easing bias. Indeed, low inflation conditions suggest that the central bank would be more open to cutting rates if there were a deterioration in economic conditions, particularly in the labour market.

However, we believe that Australia's low potential growth rate of 2.5% helps to explain the underlying strength in labour markets despite sluggish GDP growth.

The labour market report for February is scheduled for release on 17 March to assess whether the downside surprise in the January print was due to volatility.

Soft Q4 data leads to a downward revision in our GDP forecast. As for the AUD FX and rates markets, the RBA announcement took a back seat to the release of current account and inventory data for Q4'2015, which came in below market expectations and our forecasts. As a result, any abrupt gains of AUD against majors should not be surprised as the more AUD's bearish tantrum likely later part in H1 owing to today's Chinese PMIs slipped from 49.4 in January to 49.0 last month, the weakest reading in more than four years.

Hedging Frameworks:

1M ATM IVs are spiking higher above 15%, volatility smiles most frequently show that traders are willing to pay higher implied volatility prices as the strike price grows aggressively out of the money.

The current spot FX is trading at 1.5183, since we expect more dips extending up to 1.5103 levels in near terms, aggressive bears can initiate strategy using ATM puts.

But unlike a simple naked puts, backspreads have an extra long that has not only leveraging effects, a short option at a lower strike that caps your reward but also reduces the net cost of the trade.

So, the recommendation for now is to go long in 2W ATM -0.49 delta put, long in 1M (1%) OTM -0.39 delta put and simultaneously short 1W (1.5%) ITM put with positive theta..

As the strikes have been narrowed, the profit potential is greater, so that the ratio needed is also lower to profit on underlying movement.

Since the option you sell will always be lower strike on the skew curve with shorter tenor it means you are getting a better deal on what you are selling compared to what you are buying.