One-month implied volatility on the Aussie/U.S. dollar shot over 15% from 13.5% at the end of last month, before settling back down to trade at 14.4% last Wednesday. Implied volatility on the Aussie dollar has been high for several weeks after disappointing growth figures and amidst a cooling off of its housing market, according to a New York-based trader. The increasing unlikelihood that Reserve Bank of Australia will raise interest rates is also weakening the currency, he added. Aussie/dollar spot hit a more than two-week low of USD0.69 on June 3, before strengthening slightly to USD0.6918 last Wednesday.
Structures positioning for a weakening in the Aussie currency and exotic trades, such as reverse knock-outs, were popular plays in the past week, said the trader. Speculative accounts were particularly active trading the Australian dollar against several different currencies, he said.
Michael Jansen, currency strategist at National Australia Bank in New York, noted that while several economies, such as the U.S., Europe and the U.K., are poised for growth Australia is undergoing a domestic slow down and speculative accounts are short the currency. Although the U.S. dollar has been choppy in the past few months, fx accounts are hesitant to be aggressively short the U.S. dollar, he said. In the coming weeks the Aussie dollar may dip as low as USD0.675, although Jansen predicts the currency will stand around USD0.71 in three months.
