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Demand for Downside Protection Sees Bumper NZD Options Volumes

NZD
  • No surprise to see NZD/USD options volumes well ahead of average following the RBNZ rate decision overnight - with a flurry of options trades crossing in late Asia-Pac hours/early Europe to prop activity.
  • Downside NZD protection has been the focus after the pullback in spot, with over $4 in put notional trading for every $1 in calls. $0.6000 put strikes have seen particular interest, with $460mln wagered against that level.
  • The front-end of the NZD implied vol curve has stabilised at relatively low levels since the RBNZ decision - early May saw the lowest print for 1m implied since early 2022 - largely due to the persistent roll lower in realized vols off the late 2022 peak.
  • This leaves the NZDUSD smile curve skewed in favour of OTM puts - but retaining the parallel shift lower off elevated levels posted earlier this year. An ATM 1m straddle now breaks even on a swing of approx 140 pips at present, down from approx 170 pips two months ago.
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