Free Trial

NZD, CAD Get Vol Boost Ahead of Respective Rate Decisions

OPTIONS
  • The front-end of the G10 FX vol curve is well bid as USD contracts begin to capture the US CPI risks present on Wednesday. An overnight option struck today will expire 90 minutes after the inflation release tomorrow - however the vol premium added for some currencies is of particular interest.
  • G10 FX overnight vols have added ~4.5 vol points on average, but this near doubles for NZD, highlighting the risks surrounding the RBNZ rate decision overnight. While no change to headline policy is expected, markets are cognizant of the dovish risks given the softer-than-expected GDP release and threat of recession across New Zealand this year.
  • Our preview found here: https://roar-assets-auto.rbl.ms/files/60784/MNI%20... flags that by year-end, a cumulative 59bps of easing is factored into OIS pricing, despite the RBNZ's OCR track implying little chance of rate cuts this calendar year.
  • An overnight ATM straddle breaks even on a ~45 pip swing in NZD/USD, double the swing implied by prevailing background vols. This suggests a dovish RBNZ tilt could prompt a challenge of $0.60 in NZD/USD as well as 0.5997, the 50% retracement of the upleg off the cycle low printed Apr01.

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.