RBA is scheduled to announce its cash rates on October 2nd followed by monetary policy statement. If the Aussie central bank remains firmly on hold, as we expect, AUD may lose its bullish streaks.
While Mr Kuroda (Governor BoJ) also defended the Japanese central bank’s 2 pct inflation target, considered by many analysts as too ambitious, saying the bank can help keep long-term currency moves stable by setting its price goal at a level equivalent to other central banks.
Where the impacts on JPY of North Korea’s actions have been limited so far, if North Korea continues to push its boundary, we cannot exclude the possibility that JPY becomes more sensitive over its actions.
Overall, AUDJPY major trend goes in consolidation phase but for now, has been losing its momentum as stated in our recent write up on technical section. For more reading, visit below weblink:
Now, let’s just glance through some fundamental key drivers,
Bearish scenarios:
1) The unemployment rate moves back towards 6%, forcing the RBA to respond more aggressively to weak inflation
2) China data weaken materially.
Bullish scenarios:
1) China eases policy and commodities rebound
2) The RBA adopts a more hawkish tone to its communications.
So far, RBA outlook seems to be on hold for some time which is anchoring short-maturity interest rates and should keep 3yr swap rates in a 1.8% to 2.3% range, as long as core inflation remains below 2%.
While JP Morgan’s projections of AUDJPY at 81 by Dec’2017, 79 by Q1’2018.
Hedging framework (AUDJPY):
On hedging grounds, risk-averse traders, capitalizing ongoing rallies of the underlying spot FX, we advocate shorting a 3M in premium-rebate notional and buying a 6M 84.250 AUDJPY one-touch put.
Those who wish to reduce cost of hedging; we advocate buying 4M sell 2M AUDJPY OTM put at 86/90.159 strike in 1:0.753 notionals.
Vols of 2m tenors are at lower side which is conducive for option writers, hence, we’ve chosen ITM striking put as we agree with JP Morgan’s projections.


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