Uncertainty surrounding the interest-rate policies of Australia's and New Zealand's central banks prompted strong buying of AUD/NZD short-dated at-the-money options last week. That boosted one-month-and-under Aussie/Kiwi implied volatilities and one-week implied vol spiked to 9.75% Wednesday from 8.75% the previous week. AUD/NZD spot was at NZD116.25 Wednesday afternoon from NZD115 earlier in the day and NZD113.75 the previous week.
Traders noted about 50% heavier-than-normal trading volume last week in one-week to one-month AUD/NZD options--mostly by hedge funds. New Zealand's central bank decided Wednesday to maintain interest rates and Australia's central bank will announce its decision next week. "Those announcements will be out of the way in another week," a trader said, noting most interest is in one- and two-week at-the-money options. In both cases, a trader said, "The consensus is well divided."
Naomi Fink, fx strategist at BNP Paribas in New York, said, "Many are expecting [New Zealand's] decision to stay on hold to lead to a narrowing in the overnight rate differential, which is the only thing supporting the Kiwi."
At the same time as implied volatilities were ticking up in the antipodes, a broadly-expected decision by the U.S. Federal Reserve to maintain interest rates furthered a several-month-long selloff in U.S. dollar options and caused implied vols to hit new lows.
One New York fx options trader griped, "It's beginning to sound like a broken record. The more interesting stories are in other currencies, where there is not as much volume or liquidity, but more opportunity for those who know what they're doing."
