Following Fonterra’s generous 2017/18 milk price forecasts, gamma buyers begin to anticipate RBNZ’s Wheeler will have a more hawkish tone after forthcoming central bank decision, sending AUD/NZD overnight and 1-week vols to their highest levels of the year.
The RBNZ may have to acknowledge rising inflation pressures
by discarding its neutral stance
* AUD/NZD 2-yr interest rate spreads, at 0.365, test monthly highs
* The RBA is seen leaving rates unchanged at next meeting on June 6
* Though higher Wednesday, AUD remains under pressure from
falling copper prices, continued weakness in the Shanghai
index and concerns about the nation’s 2017/18 budget and 6bp
bank tax
* AUD/NZD targeting its 200-DMA of 1.0597, with 1.05 acting as
a pivot for the past several years
* 1-year vols imply a range of 0.9917-1.1439, nearly
matching the historical range that has been in place since 2014
* Notable trades: AUD122m 1.0580 strikes May 12
Source: Bloomberg
Trader Senan Fuchedzhiev
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