FILE PHOTO: Australian dollars are seen in an illustration photo February 8, 2018. REUTERS/Daniel Munoz/ File Photo
SYDNEY: Currency traders are ramping up bullish Australian dollar bets in the options market as conviction grows for the Reserve Bank of Australia (RBA) to raise interest rates today.
Aussie dollar call options, which bet on the currency rising, saw triple the volume of put options last Thursday, according to data from the Chicago Mercantile Exchange Group’s options central limit order book.
Earlier this week, risk reversals showed traders paying more to bet on an Aussie rally than a decline for the first time since 2018. These gauges compare the price of bullish and bearish bets in the options market.
“With the recent strong jobs and inflation data, RBA hike probabilities have gone up further, resulting in increased demand for Australian dollar longs against the dollar,” said Mayank Navalakha, global head of foreign exchange and precious metals options at Australia & New Zealand Banking Group.
Investors are also showing strong interest in option structures that benefit from the Australian dollar’s appreciation against its New Zealand counterpart, he said.
The Aussie dollar is near a 2023 high as hot inflation puts the RBA on track to potentially be the first major central bank to raise rates this year. Swaps markets are pricing a 71% chance that the RBA would deliver a quarter-point increase today.
Policy shifts in Washington and Beijing are providing further tailwinds for the Aussie.
It holds a position among this year’s top three Group-of-10 currencies after US President Donald Trump signalled he is unconcerned by the dollar’s slide. Rising commodity prices have also supported the currency as China prepares to ease policy for its housing market. — Bloomberg
