FxWirePro: Relative Value Options Trades Among Antipodeans

We expect the RBNZ to cut the OCR by 25bp in May and then remain on hold until 2020 when a weaker NZ economy will require a further cut. That should keep 2yr swap yields depressed, with fresh record lows below 1.60% likely.

While the global risk appetite has improved as China has taken steps to underpin growth and fears over the US economy have waned. Commodity prices are mixed (iron ore up, thermal coal down) but overall point to higher AUD. But yield differentials should eventually weigh on AUD as the RBA in May paves the way for Aug rate cut and US markets remove Fed rate cut risk in 2019.

Buy NZDUSD put funded by selling an AUDNZD put In New Zealand, data from a limited calendar this week did little to improve sentiment around NZD, as Q1 business confidence in particular plunged. With concerns about domestic growth and rates markets poised for a central bank that has positioned for the first or two imminent cuts, but with certain positioning indicators indicating closer to neutral (refer above chart), we continue to believe there is downside scope for NZD as well.

AUDNZD, which we sold to finance the kiwi put, performed favorably on stronger Australian data. Note that, just as with the USDJPY put in the earlier trade, we re-strike the AUDNZD put in this structure to take in more premium. 

Trade tips: Uphold a 3m NZD put/USD call, strike 0.6650 and sell a 3m AUDNZD call, strike 1.0350. The total net premium received of 38bp (see table for details). Marked at 0.30%. 

Currency Strength Index: FxWirePro's hourly AUD spot index is flashing 34 (which is mildly bullish), while hourly USD spot index was at shy above -49 (bearish) at 09:17 GMT.

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex