Traders bought two-month Australian dollar calls against the U.S. dollar last week expecting that the Australian dollar would slowly continue to appreciate. The calls were struck at USD0.56 while spot traded at USD0.55 Wednesday slightly up from USD0.5545 the week before, said a trader in Sydney. Two-month implied volatility stood with bid/offer spreads of 13.2%/13.5% Wednesday down from a mid level of 14.1% the previous week.
Volatility dropped in this period because the Australian dollar settled in a USD0.55-USD0.56 range through most of last week, the trader said. A 50bp rate cut by the Reserve Bank of Australia Wednesday had been widely anticipated and priced in so did not move the market, he said. Traders believed the Aussie could appreciate because the currency has been undervalued for around a year on the back of a strong U.S. economy. With U.S. economic fundamentals apparently on the downswing, the Aussie dollar should appreciate, he argued.
Volumes were fairly thin in a quiet week for Asian currency options, the trader said. Notionals were typically USD50 million.
Adam Myers, currency analyst at Westpac Banking Corp. in Sydney, predicted that the Aussie dollar could fall as low as USD0.52 against the dollar this quarter. Economic pressures in the U.S. are now not expected to become as severe as previously thought and the U.S. seems more committed to keeping the U.S. dollar strong, he said.
