Buying Puts In NZDUSD
Saxo Bank | Apr 21, 2015 08:52AM ET
Background
NZDUSD is trading near the top of the recent range on expectations of Federal Reserve dovishness, while AUDNZD Is near parity and the market is enthusiastic to be long the G10’s highest yielding currency in short EURNZD carry trades.
But the kiwi’s upside potential from here is limited and the currency is priced for perfection. Over the next few months, we will look for mean reversion back lower as the least hiccup could derail the currency’s strength – perhaps on a bout of risk aversion over Europe or more likely, the return of stronger US data from the April data cycle.
Management and risk description
Weaker US data that encourages further delay in Fed hikes.
Parameters
Entry: Long NZD put/USD call, strike price 0.7400, expiry July 21 (costs 109 pips at spot reference of 0.7670 on April 21).
Time horizon: Three months or begin hedging if spot trades well below 0.7200.
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