7 Jun 2013
Flash: Opportunities across AUD volatility curves - Societe Generale
FXstreet.com (Barcelona) - Societe Generale strategists see opportunities across that AUD volatility curve.
They begin by noting that AUD has underperformed the JPY much more than the USD over the past two weeks. Further, AUD/USD and AUD/JPY risk reversals have increased to the same extent, suggesting that the option market discounted similar bearishness for each pair. They write, “But the AUD/JPY ATM curve barely inverted, whereas AUD/USD front-end vols surged. We recommend trading the convergence of both curves, as both an attractive relative value position and a decent hedge against the risk of US data stalling.”
They begin by noting that AUD has underperformed the JPY much more than the USD over the past two weeks. Further, AUD/USD and AUD/JPY risk reversals have increased to the same extent, suggesting that the option market discounted similar bearishness for each pair. They write, “But the AUD/JPY ATM curve barely inverted, whereas AUD/USD front-end vols surged. We recommend trading the convergence of both curves, as both an attractive relative value position and a decent hedge against the risk of US data stalling.”