FxWirePro: Bullish, bearish scenarios of Aussie and Yen – Option trade strategies on both hedging and speculative grounds

Bearish AUD scenarios:

1) The unemployment rate breaks above 6%, forcing the RBA to respond more aggressively to weak inflation

2) The Fed responds to “animal spirits” and bullish survey data by delivering a faster pace of hikes than currently expected

3) China data weaken materially, validating the fall in commodity prices.

Bullish AUD scenarios:

1) China eases policy and commodities rebound;

2) The Fed’s tightening timeline is severely disrupted by a weakening in local data; or

3) The Australian housing market reaccelerates.

Bearish JPY scenarios:

1) The hawkish shifts by other G10 central banks accelerates to lead wider rate spreads with Japan and

2) Japanese government’s fiscal policy becomes more expansionary and the BoJ finances it, resulting in higher Japan’s inflation expectations.

Bullish JPY scenarios:

1) The global investors’ risk aversion heightens significantly, possibly due to deterioration in North Korea situation and/or US-Japan trade frictions

2) The weak US economy dampens hopes for Fed hikes and leads broad USD weakness.

Option Trade Recommendations:

Buy a 6M 83.00 AUDJPY one-touch put, sell a 3M in premium-rebate notional.

Buy 4M sell 2M AUDJPY OTM put at 85 strike in 1:0.753 notionals.

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