Players were snapping up kiwi/dollar options early last week in the lead up to the Reserve Bank of New Zealand's announcement on the direction of country's interest rates. Uncertainty over whether the bank would hold rates or continue two years of hikes triggered investors to buy at-the-money put and call options at the front end of the curve, to capture volatility.
Options with one-week and one-month maturities were the most common, with strikes between USD0.68 and USD0.69. The New Zealand dollar was trading at USD0.6835 spot going into the announcement on Thursday morning. At the same time, one-month implied volatility for the cross jumped to around 10.85% from around 9% the week before.
There was sizable market interest in buying kiwi puts with strikes above USD0.69, but many investors held off because the play was too expensive, said one trader, declining to specify cost.
Demand fell when the RBNZ announced it would hold rates at 7.25%, driving the currency higher against the greenback, to USD0.6889.
