The price of Aussie dollar/U.S. dollar options spiked last week as traders snapped up positions on the Aussie currency. One-month implied volatility stood at 9% Wednesday, up from 8% where it had traded the previous week, according to one New York-based trader. The currency pair traded at USD0.5765 last Wednesday, up from USD0.5611 on Jan. 2.
The Aussie dollar has good fundamentals and has historically been among the favorite first positions taken up at the beginning of the year, said one trader. Among its attractions is the currency's attachment to gold and rising commodity prices. Market bullishness and favorable economic releases coming out of Australia have also contributed to interest in the currency, he added.
While risk reversals on the Aussie dollar have traditionally favored puts, last week saw most traders purchasing calls, which can be attributed to the increased optimism in the currency. But, the trader said most demand has come from the cash market.
David Mozina, head of the group of 10 foreign exchange strategy at Banc of America Securities in New York, anticipates the Aussie dollar will appreciate to USD0.59 by the end of March, and stand at USD0.63 in 12 months. The Australian dollar has an 80% correlation with the credit spread of U.S. investment grade corporate bonds, which have shown considerable compression over the last few months. U.S. firms are continuing to repair their balance sheets by reducing much of their debt and this bodes well for further spread compression, and hence the Aussie currency, he said.
AUD/USD Spot & One-Month Implied Volatility