Market players holding speculative long Aussie/short U.S dollar positions turned to the options markets last Wednesday to gain exposure to the greenback's rebound. Investors bought short-dated upside options as the dollar appreciated to USD0.7749 late on Wednesday from USD0.7768 on Monday. The dollar hit a 12 month low of USD0.7977 against the Aussie on Feb. 13.
The move in the dollar pushed one-month implied volatility to 11.5% from 11.2% the week before. The demand for short-dated options was indicated by a higher jump in one-week implied volatility, which traded at 12.75% on Thursday and overnight implied volatility reached 17%. Volatility rose in spite of a big seller of six-month Aussie dollar options the previous Friday, which had driven one-month implied volatility down 50 basis points.
Hedge funds and other speculative traders were the most active players in the options market, looking to buy one and two week U.S. dollar calls with strikes at USD0.75 and USD0.76, said traders.
Wednesday saw a corrective dollar rebound across the board, led by currencies which had been traded speculatively, such as the Australian dollar, and it sparked unwinding of long Aussie positions' said Ian Stannard, currency strategist at BNP Paribas in London. Stannard noted that talk of interest rate cuts in Europe, coupled with a positive testimony to congress by Alan Greenspan, chairman of the Federal Reserve, had encouraged the U.S. dollar's rise against the group-of-seven currencies.
AUD/USD Spot & One-Month Implied Volatility