FxWirePro: Australia's positive job data, poor demand for New Zealand's dairy products fuel AUD/NZD – hedge with PRBS

Consider this as 2nd chance for speculating opportunity and 2nd chance for reducing hedging cost if you missed out put ratio spreads when recommended this earlier on last week. Contemplating the previous long lasting downtrend we think the pair is likely to head towards downwards. New Zealand's major industry dairy products crumbled under the pressure of a supply glut and slowing demand out. On the slip side, Aussie shows good numbers in employment generation, these two factors together from both side putting AUDNZD's handsome gains today. Moreover, Kiwi dollar slumps owing to RBNZ's rate cut, overnight cash rate by 25 basis points to 2.75% as expected.

Put Ratio Back Spread: AUD/NZD

For now, with the above technical reasoning, we recommend arresting further downside risks of this pair by hedging through Put Ratio Back Spread.

The reason for depleting strips and deploying back spread is that it is proportionately less chances of spiking in short run, but to mitigate any abrupt upside risks and safeguard our targets downside 2 out of the money puts are suffice with 1 short. Expect the underlying currency exchange rate of AUDNZD to make a larger move on the downside.

Thus, purchase 1M 2 lots of At-The-Money -0.51 delta puts and sell 1M one lot of (1%) In-The-Money put option. The short ITM puts funds to the purchase of the greater number of long puts and the position is entered for no cost or a net credit. The delta of combined positions should be around -0.39 with slightly negative theta value.